**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**




**(Mark
                One)****x**
            **Annual
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934****o**
            **Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**





FOR
      THE
      FISCAL YEAR ENDED DECEMBER 31, 2006





**Commission
      File No. 1-16263**





**MARINE
      PRODUCTS CORPORATION**





**Delaware**
            **58-2572419****(State
                of Incorporation**)
            **(I.R.S.
                Employer Identification
                No.)**





**2801
      BUFORD HIGHWAY, SUITE 520**


**ATLANTA,
      GEORGIA 30329**


**(404)
      321-7910**





Securities
      registered pursuant to Section 12(b) of the Act:





*Title
                of each
                class*
            *Name
                of each exchange on which
                registered*COMMON
                STOCK, $0.10 PAR VALUE
            NEW
                YORK STOCK EXCHANGE





Securities
      registered pursuant to section 12(g) of the Act:


NONE





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. o Yes x
      No





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. o Yes x
      No





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. x Yes o
      No





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. x





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




Large
                accelerated filer o
            Accelerated filer x
            Non-accelerated filer 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





The
      aggregate market value of Marine Products Corporation common stock held by
      non-affiliates on June 30, 2006, the last business day of the registrant’s most
      recent second fiscal quarter, was $103,711,928 based on the closing price on
      the
      New York Stock Exchange on June 30, 2006 of $9.73 per share.





Marine
      Products Corporation had 38,236,233 shares of common stock outstanding as of
      February 15, 2007.





Documents
      Incorporated by Reference





Portions
      of the Proxy Statement for the 2007 Annual Meeting of Stockholders of Marine
      Products Corporation are incorporated by reference into Part III, Items 10
      through 14 of this report.




1




**PART
      I**





References
      in this document to “we,” “our,” “us,” “Marine Products,” or “the Company” mean
      Marine Products Corporation (“MPC”) and its subsidiaries, Chaparral Boats, Inc.
      (“Chaparral”) and Robalo Acquisition Company LLC (“Robalo”), collectively or
      individually, except where the context indicates otherwise.





**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, 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. The forward-looking statements include,
      without limitation, statements regarding our belief that international sales
      could produce additional sales growth; our expectation to continue to offer
      sales incentives and promotion programs in the future; management’s belief that
      Marine Products is well positioned to take advantage of current market
      conditions which characterize the industry; our intention to continue to
      strengthen our dealer network and build brand loyalty with dealers and
      customers; our ability to locate and complete strategic acquisitions that will
      complement our existing product lines, expand our geographic presence and
      strengthen our capabilities; our belief that our corporate infrastructure and
      marketing and sales capabilities, in addition to our cost structure and
      nationwide presence, enable us to compete effectively; our belief that we do
      not
      currently anticipate that any material expenditures will be required to continue
      to comply with existing environmental or safety regulations; our belief that
      our
      product liability insurance will be adequate; our intention to pursue
      acquisitions and form strategic alliances that will enable us to acquire
      complementary skills and capabilities, offer new products, expand our customer
      base and obtain other competitive advantages; our belief that the ultimate
      outcome of litigation arising in the ordinary course of business will not have
      a
      material adverse effect on our liquidity, financial condition or results of
      operations; our intention to continue to pay cash dividends; our ability to
      execute stated business and financial strategies in the future to better manage
      our Company; management’s belief that realizing growth in net sales and
      profits in 2007 will be a challenge; management’s belief that advertising and
      consumer targeting efforts will benefit the boating industry and our Company
      and
      could result in increased advertising and other selling and general
      administrative expenses during 2007; expectations about the amount of capital
      expenditures and contributions to our defined benefit plan during 2007 and
      the
      purpose of those capital expenditures; the adequacy of the Company’s capital
      resources; the amount and timing of future contractual obligations; judgments
      about the Company’s critical accounting policies; and the effect of various
      recent accounting pronouncements on the Company, its operating results and
      financial condition. These statements involve known and unknown risks,
      uncertainties and other factors which may cause the actual results, performance
      or achievements of Marine Products Corporation to be materially different from
      any future results, performance or achievements expressed or implied in such
      forward-looking statements. These risks involve the outcome of current and
      future litigation, the impact of interest rates, economic conditions, fuel
      costs
      and weather on our business, our dependence on a network of independent boat
      dealers, the possibility of defaults by our dealers in their obligations to
      third-party dealer floor plan lenders, and our reliance on third party
      suppliers. 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. See “Risk Factors” on page 10 for a discussion of factors that
      may cause actual results to differ from our projections.





**Item
      1. Business**





Marine
      Products manufactures fiberglass motorized boats distributed and marketed
      through its independent dealer network. Marine Products’ product offerings
      include Chaparral sterndrive and inboard pleasure boats and Robalo outboard
      sport fishing boats.





**Organization
      and Overview**





Marine
      Products is a Delaware corporation incorporated on August 31, 2000, in
      connection with a spin-off from RPC, Inc. (NYSE: RES) (“RPC”). Effective
      February 28, 2001, RPC accomplished the spin-off by contributing 100 percent
      of
      the issued and outstanding stock of Chaparral to Marine Products, a newly formed
      wholly-owned subsidiary of RPC, and then distributing the common stock of Marine
      Products to RPC stockholders.




2




Marine
      Products designs, manufactures and sells recreational fiberglass powerboats in
      the sportboat, deckboat, cruiser, and sport fishing markets. The Company sells
      its products to a network of 195 domestic and 44 international independent
      authorized dealers. Marine Products’ mission is to enhance its customers’
boating experience by providing them with high quality, innovative powerboats.
      The Company intends to remain a leading manufacturer of recreational powerboats
      for sale to a broad range of consumers worldwide.





The
      Company manufactures Chaparral sterndrive and inboard-powered sportboats,
      deckboats and cruisers, and Robalo sport fishing boats, which are powered by
      outboard engines and designed primarily for salt-water sport fishing. The most
      recent available industry statistics [source: Statistical Surveys, Inc. report
      dated September 30, 2006] indicate that Chaparral is the third largest
      manufacturer of 18 to 35 foot sterndrive boats in the United States.





Chaparral
      was founded in 1965 in Ft. Lauderdale, Florida. Chaparral’s first boat was a
      15-foot tri-hull design with a retail price of less than $1,000. Over time
      the
      Company grew by offering exceptional quality and consumer value. In 1976,
      Chaparral moved to Nashville, Georgia, where a manufacturing facility of a
      former boat manufacturing company was available for purchase. This provided
      Chaparral an opportunity to obtain additional manufacturing space and access
      to
      a trained work force. With over 40 years of boatbuilding experience, Chaparral
      continues to improve the design and manufacturing of its product offerings
      to
      meet the growing needs of discriminating recreational boaters.





Robalo
      was founded in 1969 and its first boat was a 19-foot center console salt-water
      fishing boat, among the first of this type of boat to have an “unsinkable” hull.
      The Company believes that Robalo’s share of the outboard sport fishing boat
      market is approximately one percent.





**Products**





Marine
      Products offers a comprehensive range of motorized recreational boats. Marine
      Products distinguishes itself by offering a wide range of products to the family
      recreational market and cruiser market through its Chaparral brand, and to
      the
      sport fishing market through its Robalo brand.





The
      following table provides a brief description of our product lines and their
      particular market focus:




**Product
                  Line**
              
              **Number**
                **of**
                **Models**
              
              **Overall**
                **Length**
              
              **Approximate**
                **Retail**
                **Price
                  Range**
              
              **Description**Chaparral
                  - SSi Sportboats
              
              12
              
              18′-28′
              
              $21,000
                  - $154,000
              
              Fiberglass
                  bowriders and closed deck runabouts. Encompasses affordable, entry-level
                  to mid-range and larger sportboats. Marketed as high value runabouts
                  for
                  family groups.Chaparral
                  - SSX
                Sportdecks
              
              3
              
              24′-29′
              
              $49,000
                  - $142,000
              
              Fiberglass
                  bowrider crossover sportboats that combine the ride of a sportboat
                  and the
                  usefulness of a deckboat. Marketed as high value runabouts with
                  the
                  usefulness of a deckboat for family groups.Chaparral
                  - Sunesta Deckboats
              
              6
              
              22′-28′
              
              $41,000
                  - $82,000
              
              Fiberglass
                  deck boats. Encompasses affordable, entry-level to mid-range deck
                  boats.
                  Marketed as high value family pleasure boats with the handling
                  of a
                  runabout, the style of a sportboat and the roominess of a cruiser.Chaparral
                  - Signature Cruisers
              
              7
              
              26′-35′
              
              $66,000
                  - $345,000
              
              Fiberglass,
                  accommodation-focused cruisers. Marketed to experienced boat owners
                  through trade magazines and boat show exhibitions.Robalo
                  - Sport Fishing Boats
              
              8
              
              21′-29′
              
              $55,000
                  - $213,000
              
              Sport
                  fishing boats for large freshwater lakes or saltwater use. Marketed
                  to
                  experienced fishermen.




3




**Manufacturing**
 
 Marine
        Products’ manufacturing facilities are located in Nashville, Georgia and
        Valdosta, Georgia. Marine Products utilizes seven different plants to, among
        other things, manufacture interiors, design new models, create fiberglass
        hulls
        and decks, and assemble various end products. Quality control is conducted
        throughout the manufacturing process. The Company’s manufacturing operations are
        ISO 9001: 2000 certified, which is an international designation of design,
        manufacturing, and customer service processes. ISO 9001: 2000 surpasses previous
        ISO designations. Management believes Chaparral is the third largest sterndrive
        boat manufacturing brand to hold the ISO 9001: 2000 certification. When fully
        assembled and inspected, the boats are loaded onto either company-owned trailers
        or third-party marine transport trailers for delivery to dealers. The
        manufacturing process begins with the design of a product to meet dealer
        and
        customer needs. Plugs are constructed in the research and development phase
        from
        designs. Plugs are used to create a mold from which prototype boats can be
        built. Adjustments are made to the plug design until acceptable parameters
        are
        met. The final plug is used to create the necessary number of production
        molds.
        Molds are used to produce the fiberglass hulls and decks. Fiberglass components
        are made by applying the outside finish or gel coat to the mold, then numerous
        layers of fiberglass and resin are applied during the lamination process
        over
        the gel coat. After curing, the hull and deck are removed from the molds
        and are
        trimmed and prepared for final assembly, which includes the installation
        of
        electrical and plumbing systems, engines, upholstery, accessories and graphics.
 
 **Product
        Warranty**
 
 Marine
        Products provides a five year transferable hull structural warranty on Chaparral
        products against defects in material and workmanship and a 10 year transferable
        structural hull warranty on Robalo products. A one year warranty on components
        is provided as well. The engine manufacturer warrants engines included in
        the
        boats.
 
 **Suppliers**
 
 Marine
        Products’ two most significant components used in manufacturing its boats, based
        on cost, are engines and fiberglass. For each of these, there is currently
        an
        adequate supply available in the market. Marine Products has not experienced
        any
        material shortages in any of these products. Temporary shortages, when they
        do
        occur, usually involve manufacturers switching model mixes or introducing
        new
        product lines. Marine Products obtains most of its fiberglass from a leading
        domestic supplier. Marine Products believes that there are several alternative
        suppliers if this supplier fails to provide adequate quality or quantities
        at
        acceptable prices.
 
 Marine
        Products does not manufacture the engines installed in its boats. Engines
        are
        generally specified by the dealers at the time of ordering, usually on the
        basis
        of anticipated customer preferences or actual customer orders. Sterndrive
        engines are purchased through the American Boatbuilders Association (“ABA”),
        which has entered into engine supply arrangements with Mercury Marine and
        Volvo
        Penta, the two currently existing suppliers of sterndrive engines. These
        arrangements contain incentives and discount provisions, which may reduce
        the
        cost of the engines purchased, if specified purchase volumes are met during
        specified periods of time. Although no minimum purchases are required, Marine
        Products expects to continue purchasing sterndrive engines through the ABA
        on a
        voluntary basis in order to receive volume-based purchase discounts. Marine
        Products does not have a long-term supply contract with the ABA. Marine Products
        has outboard engine supply contracts with Honda and Yamaha. These engine
        supply
        arrangements were not negotiated through the ABA. In the event of a sudden
        interruption in the supply of engines from these suppliers, our sales and
        profitability could be negatively impacted. See “Growth Strategies” below.
 
 Marine
        Products uses other raw materials in its manufacturing processes. Among these
        are stainless steel and resins made from feedstocks. During 2006 the price
        of
        these raw materials increased, adversely affecting our 2006 operating results.
        See “Inflation” below.
 
 **Sales
        and Distribution**
 
 Sales
        are
        made through approximately 167 Chaparral dealers and 53 Robalo dealers located
        in markets throughout the United States. Approximately 25 of these dealers
        sell both brands. Dealers market directly to consumers at boat show exhibitions
        and in the dealers’ showrooms. Marine Products also has 44 international
        dealers. Most of our dealers inventory and sell boat brands manufactured
        by
        other companies, including some that compete directly with our brands. The
        territories served by any dealer are not exclusive to the dealer; however,
        Marine Products uses discretion in establishing relationships with new dealers
        in an effort to protect the mutual interests of the existing dealers and
        the
        Company. Marine Products’ nine independent field sales representatives call upon
        existing dealers and develop new dealer relationships. The field sales
        representatives are directed by a National Sales Coordinator, who is responsible
        for developing a full dealer distribution network for the Company’s products.
        The marketing of boats to retail customers is primarily the responsibility
        of
        the dealer. Marine Products supports dealer marketing efforts by supplementing
        local advertising, sales and marketing follow up in boating magazines, and
        participation in selected regional, national, and international boat show
        exhibitions. No single dealer accounts for more than 10 percent of
        sales.
  4
  Marine
        Products continues to seek new dealers in many areas throughout the U.S.,
        Europe, South America, Asia, Russia and the Middle East. In general, Marine
        Products requires payment in full before it will ship a boat overseas.
        Consequently, there is no credit risk associated with its international sales
        or
        risk related to foreign currency fluctuation. Marine Products believes
        international sales could produce additional sales growth. Due in part to
        U.S.
        dollar weakness, sales to international dealers increased in 2006 compared
        to
        2005. International sales in 2006, 2005 and 2004 were approximately 18.0,
        15.0
        and 6.0 percent of total sales, respectively.
 
 Marine
        Products’ sales orders are indicators of strong interest from its dealers.
        Historically, dealers have in most cases taken delivery of all their orders.
        The
        Company attempts to ensure that its dealers do not accept an excessive amount
        of
        inventory by jointly monitoring their inventory levels. Knowledge of inventory
        levels at the individual dealers facilitates production scheduling with very
        short lead times in order to maintain flexibility, in the event that adjustments
        need to be made to dealer shipments. In the past, Marine Products has been
        able
        to resell any boat for which the order has been cancelled. To date, order
        delays
        have not had a material effect on Marine Products.
 
 Most
        of
        Marine Products’ domestic shipments are made pursuant to “floor plan financing”
programs in which Marine Products’ subsidiaries participate on behalf of their
        dealers with two major third-party financing institutions. Under these
        arrangements, a dealer establishes lines of credit with one or more of these
        third-party lenders for the purchase of boat inventory for sales to retail
        customers in their show room or during boat show exhibitions. When a dealer
        purchases and takes delivery of a boat pursuant to a floor plan financing
        arrangement, it draws against its line of credit and the lender pays the
        invoice
        cost of the boat directly to Marine Products, generally, within 10 business
        days. When the dealer in turn sells the boat to a retail customer, the dealer
        repays the lender, thereby restoring its available credit line. Each dealer’s
        floor plan credit facilities are secured by the dealer’s inventory, letters of
        credit, and perhaps other personal and real property. Most dealers maintain
        financing arrangements with more than one lender. In connection with the
        dealer’s floor plan financing arrangements with qualified lenders, Marine
        Products or its subsidiaries have agreed to repurchase any of its boats,
        up to
        specified limits, which the lender repossesses from a dealer and returns
        to
        Marine Products in a “like new” condition. In the event that a dealer defaults
        under a credit line, the lender may then invoke the manufacturers’ repurchase
        agreement with respect to that dealer. In that event, all repurchase agreements
        of all manufacturers supplying a defaulting dealer are generally invoked
        regardless of the boat or boats with respect to which the dealer has defaulted.
        As of December 31, 2006, Marine Products’ aggregate obligation to repurchase
        boats under these floor plan financing programs described above was
        approximately $3.5 million. Unlike Marine Products’ obligation to repurchase
        boats repossessed by lenders, Marine Products is under no obligation to
        repurchase boats directly from dealers. Marine Products does not sponsor
        financing programs to the consumer; any consumer financing promotions for
        a
        prospective boat purchaser would be the responsibility of the dealer.
 
 Marine
        Products’ dealer sales incentive programs are variously designed to promote
        early replenishment of the stock in dealer inventories depleted throughout
        the
        prime spring and summer selling seasons, promote the sales of older models
        in
        dealer inventory and particular models during specified periods. These programs
        help to stabilize Marine Products’ manufacturing between the peak and off-peak
        periods, and promote sales of certain models. For the 2007 model year (which
        commenced July 1, 2006), Marine Products offered its dealers several sales
        incentive programs based on dollar volumes and timing of dealer purchases.
        Program incentives offered include sales discounts, inventory reduction rebates,
        and payment of floor plan financing interest charged by qualified floor plan
        providers to dealers generally through March 31, 2007. After the interest
        payment programs end, interest costs revert to the dealer at rates set by
        the
        lender. A dealer makes periodic curtailment payments (principal payments)
        on
        outstanding obligations against its dealer inventory as set forth in the
        floor
        plan financing agreements between the dealer and their particular lender.
 
 These
        various sales incentives and promotions have resulted in relatively level
        month-to-month production and sales. Similar sales incentive and promotion
        programs have been in effect during the past several years, and Marine Products
        expects to continue to offer these types of programs in the future.
 
 The
        sales
        order backlog was approximately 1,600 boats with estimated net sales of
        approximately $75 million as of December 31, 2006. This represents an
        approximate 13 week backlog based on recent production levels. As of December
        31, 2005, the sales order backlog was approximately 1,900 boats with estimated
        net sales of approximately $81 million. The decrease in the sales order backlog
        is the result of production level adjustments made to manage field inventory
        levels. The Company typically does not manufacture a significant number of
        boats
        for its own inventory. The Company occasionally manufactures boats for its
        own
        inventory because the number of boats required for immediate shipment is
        not
        always the most efficient number of boats to produce in a given production
        schedule.
 
 5
  **Research
        and Development**
 
 Essentially
        the same technologies and processes are used to produce fiberglass boats
        by all
        boat manufacturers. The most common method is open-face molding. This is
        usually
        a labor-intensive, manual process whereby employees hand spray and apply
        fiberglass and resin in layers on open molds to create boat hulls, decks
        and
        other smaller fiberglass components. This process can result in inconsistencies
        in the size and weight of parts, which may lead to higher warranty costs.
        A
        single open-face mold is typically capable of producing approximately three
        hulls per week.
 
 Marine
        Products has been a leading innovator in the recreational boating industry.
        One
        of the Company’s most innovative designs is the full-length “Extended V-Plane”
running surface on its Chaparral boat models. Typically, sterndrive boats
        have a
        several foot gap on the bottom rear of the hull where the engine enters the
        water. With the Extended V-Plane, the running surface extends the full length
        to
        the rear of the boat. The benefit of this innovation is more deck space,
        better
        planing performance and a more comfortable ride. Although the basic hull
        designs
        are similar, the Company introduces a variety of new models each year and
        periodically replaces, updates or discontinues existing models.
 
 Another
        hull design is the Hydro Lift TM used on
        the Robalo boat models. This variable dead rise hull design provides a smooth
        ride in rough conditions. It increases the maximum speed obtainable by a
        given
        engine horsepower and weight of the boat. Robalo’s current models utilize the
        Hydro Lift TM design
        and we plan to continue to provide this design on Robalo models.
 
 In
        support of its new product development efforts, Marine Products incurred
        research and development costs of $1.4 million in 2006, $1.9 million in 2005
        and
        $1.7 million in 2004.
 
 **Industry
        Overview**
 
 For
        2006,
        the recreational boating industry accounted for less than one percent of
        the
        United States gross domestic product. The recreational marine market is a
        mature
        market, with 2005 (latest data available to us) retail expenditures of
        approximately $37 billion spent on new and used boats, motors and engines,
        trailers, accessories and other associated costs as estimated by the National
        Marine Manufacturers Association (“NMMA”). Pleasure boats compete for consumers’
free time with all other leisure activities, from computers and video games
        to
        other outdoor sports. One of the greatest obstacles to continued growth for
        the
        recreational boating industry is consumers’ diminishing leisure
        time.
 
 The
        NMMA
        conducts various surveys of pleasure boat industry trends, and the most recent
        surveys indicate that 69 million people in the United States participate
        in
        recreational boating. There are currently over 17 million boats owned in
        the
        United States, including outboard, inboard, sterndrive, sailboats, personal
        watercraft, and miscellaneous (canoes, kayaks, rowboats, etc.). Marine Products
        competes in the sterndrive and inboard boating category with its three lines
        of
        Chaparral boats, and in the outboard boating category with its Robalo sport
        fishing boats. More than 90 percent of the Company’s models are sterndrive
        boats.
 
 Industry
        sales of sterndrive boats in the United States during 2006 totaling 55,363
        (source: Info-Link Technologies, Inc.), accounted for approximately 42 percent
        of the total new fiberglass powerboats sold that were between 18 and 35 feet
        in
        hull length. Sales of sterndrive boats had an estimated total retail value
        of
        $2.9 billion, or an average retail price per boat of approximately $52,000.
        Management believes that the five largest states for boat sales are Florida,
        Michigan, California, Minnesota and Texas. Marine Products has dealers in
        each
        of these states.
 
 The
        U.S.
        domestic recreational boating industry includes sales in the segments of
        new and
        used boats, motors and engines, trailers, and other boat accessories. New
        fiberglass boat market segment with hull lengths of 18 to 35 feet, represented
        $6.2 billion in retail sales during 2006. This is the market segment in which
        Marine Products competes. The table below reflects the estimated sales within
        this segment by category for 2006 and 2005, ranked by 2006 retail sales (source:
        Info-Link Technologies, Inc.):
  **2006**
                
                **2005****Boats**
                
                **Sales
                    ($ B)**
                
                **Boats**
                
                **Sales
                    ($ B)**Sterndrive
                    Boats
                
                
                55,363
                
                $
                2.9
                
                
                58,161
                
                $
                2.9Outboard
                    Boats
                
                
                58,034
                
                
                2.1
                
                
                62,469
                
                
                2.3Inboard
                    Boats
                
                
                14,485
                
                
                1.1
                
                
                13,995
                
                
                1.0Jet
                    Boats
                
                
                3,943
                
                
                0.1
                
                
                4,169
                
                
                0.1TOTAL
                
                
                131,825
                
                $
                6.2
                
                
                138,794
                
                $
                6.3




6


Chaparral’s
      products are categorized as sterndrive and inboard boats and Robalo’s products
      are categorized as outboard boats.





The
      recreational boat manufacturing market remains highly fragmented. With the
      exception of Brunswick Corporation and Genmar Holdings, Inc., which have
      acquired a number of recreational boat manufacturing operations, there has
      been
      very little consolidation in the industry. We estimate that the boat
      manufacturing industry includes over 150 sterndrive manufacturers and over
      600
      outboard boat manufacturers, largely small, privately held companies with
      varying degrees of professional management and manufacturing skill. According
      to
      estimates provided by Statistical Surveys, Inc., during the nine months ended
      September 30, 2006 (latest information available), the top five sterndrive
      manufacturers have a market share of approximately 52 percent. Chaparral’s
      market share in units during the period was 8.1 percent, which represents a
      decline of 0.2 percentage points compared to the same period in 2005. This
      decline is attributable to Chaparral’s declining market share of boats that are
      18 to 20 feet in length, although its market share in boats that are 21 to
      35
      feet in length increased during the same period. We attribute this decline
      in
      overall market share to Chaparral’s strategy of designing, building, and selling
      larger boats which carry higher average selling prices, as well as the strategy
      of certain other manufacturers who are designing smaller boats which are
      manufactured in offshore manufacturing facilities and sold in the domestic
      market at a lower price, thereby increasing the overall market share of these
      manufacturers.





Several
      factors influence sales trends in the recreational boating industry, including
      general economic growth, consumer confidence, household incomes, weather, tax
      laws, demographics and consumers’ leisure time. Interest rates and fuel prices
      can have a direct impact on boat sales, as well as various trends at the local,
      regional and national level. In addition, inflation has an impact on boat sales.
      If the cost of raw materials used in the manufacturing process increases, then
      the cost of boat ownership increases as well, which may prompt consumers either
      to buy a smaller boat or not purchase one. Competition from other leisure and
      recreational activities, such as vacation properties and travel, can also affect
      sales of recreational boats.





Management
      believes Marine Products is well positioned to take advantage of the following
      conditions, which continue to characterize the industry:




·
              labor-intensive
                  manufacturing processes that remain largely unautomated;  ·
              increasingly strict environmental
                standards
                derived from governmental regulations and customer
                sensitivities;  ·
              a lack of focus on coordinated customer
                service and support by dealers and manufacturers; and  ·
              a high degree of fragmentation and
                competition
                among the more than 150 sterndrive recreational boat
                manufacturers.





**Growth
      Strategies**





Recreational
      boating is a mature industry. According to Info-Link Technologies,
      Inc., sales of sterndrive boats were comparable in 2004 and 2005, but
      decreased by approximately five percent in 2006. During this time, Marine
      Products has experienced a compound annual decline rate of approximately
      eight percent in the number of boats sold. Marine Products has historically
      grown its boat sales and net sales primarily through increasing market share
      and
      by expanding the number of models and product lines. Unit sales declined in
      2006
      partly due to industry conditions, but also because of Marine Products’ strategy
      of building larger boats with higher average selling prices. Chaparral has
      grown
      its sterndrive market share in the 18 to 35 feet length category from 5.9
      percent in fiscal 1996 to 8.1 percent during the nine months ended September
      30,
      2006 (the most recent information provided to us by Statistical Surveys, Inc.).
      The Company continues to expand its product offerings in the outboard boat
      market, the largest boat market not previously served by the Company’s products,
      and by improvement of existing models and expansion into larger boats within
      its
      sterndrive and inboard offerings.





Marine
      Products’ operating strategy emphasizes innovative designs and manufacturing
      processes, by producing a high quality product while lowering manufacturing
      costs through increased efficiencies in our facilities. In addition, we seek
      opportunities to leverage our buying power through economies of scale.
      Management believes its membership in the ABA positions Marine Products as
      a
      significant third party customer of major suppliers of sterndrive engines.
      Marine Products’ Chaparral subsidiary is a founding member of the ABA, which
      collectively represents 13 independent boat manufacturers that have formed
      a
      buying group to pool their purchasing power in order to gain improved pricing
      on
      engines, fiberglass, resin and many other components. Marine Products intends
      to
      continue seeking the most advantageous purchasing arrangements from its
      suppliers.





7


Our
      marketing strategy seeks to increase market share by enabling Marine Products
      to
      expand its presence by building dedicated sales, marketing and distribution
      systems. Marine Products has a distribution network of 239 dealers located
      throughout the United States and internationally. Our strategy is to increase
      selectively the quantity of our dealers, and work to improve the quality and
      effectiveness of our entire dealer network. Marine Products seeks to capitalize
      on its strong dealer network by educating its dealers on the sales and servicing
      of our products and helping them provide more comprehensive customer service,
      with the goal of increasing customer satisfaction, customer retention and future
      sales. Marine Products provides promotional and incentive programs to help
      its
      dealers increase product sales and customer satisfaction. Marine Products
      intends to continue to strengthen its dealer network and build brand loyalty
      with both dealers and customers.





As
      part
      of Marine Products’ overall strategy, Marine Products will also consider making
      strategic acquisitions in order to complement existing product lines, expand
      its
      geographic presence in the marketplace and strengthen its capabilities depending
      upon availability, price and complementary product lines.





**Competition**





The
      recreational boat industry is highly fragmented, resulting in intense
      competition for customers, dealers and boat show exhibition space. There is
      significant competition both within markets we currently serve and in new
      markets that we may enter. Marine Products’ brands compete with several large
      national or regional manufacturers that have substantial financial, marketing
      and other resources. However, we believe that our corporate infrastructure
      and
      marketing and sales capabilities, in addition to our cost structure and our
      nationwide presence, enable us to compete effectively against these companies.
      In each of our markets, Marine Products competes on the basis of responsiveness
      to customer needs, the quality and range of models offered, and the competitive
      pricing of those models. Additionally, Marine Products faces general competition
      from all other recreational businesses seeking to attract consumers’ leisure
      time and discretionary spending dollars.





According
      to Statistical Surveys, Inc., the following is a list of the top ten (largest
      to
      smallest) sterndrive boat manufacturers in the United States based on unit
      sales
      between 2004 and 2006. Several of these manufacturers are part of larger
      integrated boat building companies and are marked with asterisks. According
      to
      Info-Link Technologies, Inc., the companies set forth below represent
      approximately 70 percent of all United States retail sterndrive boat
      registrations between 2004 and 2006.





1.  Sea
      Ray


2.  Bayliner*


3.  Chaparral


4.  Crownline


5.  Four
      Winns **


6.  Tracker
      Marine


7.  Glastron
      **


8.  Stingray


9.  Larson**


10.  Cobalt





The
      outboard engine powered market has a large breadth and depth, accounting for
      almost 44 percent of all boats sold. Robalo’s share of the outboard sport
      fishing boat market during the nine months ended September 30, 2006 was
      approximately one percent. Primary competitors for Robalo include Sea-Pro,*
      Grady-White, Mako, Trophy*, Boston Whaler* and Hydra Sports**.




*
            a
                subsidiary of Brunswick Corporation**
            a
                subsidiary of Genmar Holdings, Inc.





**Environmental
      and Regulatory Matters**





Certain
      materials used in boat manufacturing, including the resins used to make the
      decks and hulls, are toxic, flammable, corrosive, or reactive and are classified
      by the federal and state governments as “hazardous materials.” Control of these
      substances is regulated by the Environmental Protection Agency (“EPA”) and state
      pollution control agencies, which require reports and inspect facilities to
      monitor compliance with their regulations. The Occupational Safety and Health
      Administration (“OSHA”) standards limit the amount of emissions to which an
      employee may be exposed without the need for respiratory protection or upgraded
      plant ventilation. Marine Products’ manufacturing facilities are regularly
      inspected by OSHA and by state and local inspection agencies and departments.
      Marine Products believes that its facilities comply in all material aspects
      with
      these regulations. Although capital expenditures related to compliance with
      environmental laws are expected to increase during the coming years, we do
      not
      currently anticipate that any material expenditure will be required to continue
      to comply with existing environmental or safety regulations in connection with
      its existing manufacturing facilities.





8


Recreational
      powerboats sold in the United States must be manufactured to meet the standards
      of certification required by the United States Coast Guard. In addition, boats
      manufactured for sale in the European Community must be certified to meet the
      European Community’s imported manufactured products standards. These
      certifications specify standards for the design and construction of powerboats.
      All boats sold by Marine Products meet these standards. In addition, safety
      of
      recreational boats is subject to federal regulation under the Boat Safety Act
      of
      1971. The Boat Safety Act requires boat manufacturers to recall products for
      replacement of parts or components that have demonstrated defects affecting
      safety. While Marine Products has instituted recalls for defective component
      parts produced by other manufacturers, there has never been a safety related
      recall resulting from Marine Products’ design or manufacturing process. None of
      the recalls has had a material adverse effect on Marine Products.





**Employees**





As
      of
      December 31, 2006, Marine Products had approximately 1,100 employees, of whom
      six were management and 48 administrative. None of Marine Products’ employees is
      party to a collective bargaining agreement. Marine Products’ entire workforce is
      currently employed in the United States and Marine Products believes that its
      relations with its employees are good.





**Proprietary
      Matters**





Marine
      Products owns a number of trademarks and trade names that it believes are
      important to its business. Except for the Chaparral, Robalo and Wahoo!
      trademarks, however, Marine Products is not dependent upon any single trademark
      or trade name or group of trademarks or trade names. The Chaparral, Robalo
      and
      Wahoo! trademarks are currently registered in the United States. The current
      duration for such registration ranges from seven to 15 years but each
      registration may be renewed an unlimited number of times.





Several
      of Chaparral’s designs are protected under the U.S. Copyright Office’s Vessel
      Hull Design Protection Act. This law grants an owner of an original vessel
      hull
      design certain exclusive rights. Protection is offered for hull designs that
      are
      made available to the public for purchase provided that the application is
      made
      within two years of the hull design being made public. As of December 31, 2006,
      there were 22 Chaparral hull designs and four Robalo hull designs registered
      under the Vessel Hull Design Protection Act.





**Seasonality**





Marine
      Products’ quarterly operating results are affected by weather and general
      economic conditions. Quarterly operating results for the second quarter have
      historically recorded the highest sales volume for the year because this
      corresponds with the highest retail sales volume period. The results for any
      quarter are not necessarily indicative of results to be expected in any future
      period.





**Inflation**





During
      2006 and 2005 the Company has experienced an increase in certain material and
      component costs. The Company has responded to these increases in costs by
      instituting price increases to its dealers effective January 1, 2006, and
      instituting an additional price increase for the 2007 model year which began
      on
      July 1, 2006. These price increases did not fully absorb the increased material
      costs during 2006 and therefore negatively impacted the Company’s gross margin.
      With the continued risk of high commodity prices, energy prices and petroleum
      based products, the price of materials may 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, to the extent deemed
      appropriate, 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 our product prices.





New
      boat
      buyers typically finance their purchases. Higher inflation typically results
      in
      higher interest rates that could translate into an increased cost of boat
      ownership. Prospective buyers may choose to delay their purchases or buy a
      less
      expensive boat. The recent increases in interest rates may have had a negative
      impact on our 2006 sales, and if interest rates remain at current levels or
      increase further, our future sales and profits may be negatively
      impacted.





**Availability
      of Filings**





Marine
      Products makes available free of charge on its website,
      www.marineproductscorp.com, the annual report on Form 10-K, quarterly reports
      on
      Form 10-Q, current reports on Form 8-K, and all amendments to those reports
      on
      the same day as they are filed with the Securities and Exchange Commission.





9




**Item
      1A. Risk Factors**





*Economic
      Conditions and Consumer Confidence Levels Affect Marine Products’ Sales because
      Marine Products’ Products are Purchased with Discretionary Income*





During
      an
      economic recession or when an economic recession is perceived as a threat,
      Marine Products will be adversely affected as consumers have less discretionary
      income or are more apt to save their discretionary income rather than spend
      it.
      During times of global political or economic uncertainty, Marine Products will
      be negatively affected to the extent consumers delay large discretionary
      purchases pending the resolution of those uncertainties.





*Interest
      Rates and Fuel Prices Affect Marine Products’ Sales*





The
      Company’s products are often financed by our dealers and the retail boat
      consumers. Higher interest rates increase the borrowing costs and, accordingly,
      the cost of doing business for dealers and the cost of boat purchases for
      consumers. Fuel costs can represent
      a large portion of the costs to operate our products. Therefore, higher interest
      rates and fuel costs can adversely affect consumers’ decisions relating to
      recreational boating purchases.





*Marine
      Products’ Dependence On Its Network Of Independent Boat Dealers May Affect Its
      Growth Plans And Sales*





Virtually
      all of Marine Products’ sales are derived from its network of independent boat
      dealers. Marine Products has no long-term agreements with these dealers.
      Competition for dealers among recreational powerboat manufacturers continues
      to
      increase based on the quality of available products, the price and value of
      the
      products, and attention to customer service. We face intense competition from
      other recreational powerboat manufacturers in attracting and retaining
      independent boat dealers. The number of independent boat dealers supporting
      the
      Chaparral and Robalo trade names and the quality of their marketing and
      servicing efforts are essential to Marine Products’ ability to generate sales. A
      deterioration in the number or quality of Marine Products’ network of
      independent boat dealers would have a material adverse effect on its boat sales.
      Marine Products’ inability to attract new dealers and retain those dealers, or
      its inability to increase sales with existing dealers, could substantially
      impair its ability to execute its growth plans.





Although
      Marine Products’ management believes that the quality of its products and
      services in the recreational boating market should permit it to maintain its
      relationship with its dealers and its market position, there can be no assurance
      that Marine Products will be able to sustain its current sales levels. In
      addition, independent dealers in the recreational boating industry have
      experienced significant consolidation in recent years, which could result in
      the
      loss of one or more of Marine Products’ dealers in the future if the surviving
      entity in any such consolidation purchases similar products from a Marine
      Products competitor. See “Growth Strategies” above.





*Marine
      Products’ Financials May Be Adversely Affected By Boat Dealer
      Defaults*





The
      Company’s products are sold through dealers and the financial health of these
      dealers is critical to the Company’s continued success. The Company’s results
      can be negatively affected if a dealer defaults. Marine Products communicates
      with its dealers and manages production levels to maintain the appropriate
      level
      of field inventory.





*Marine
      Products’ Sales Are Affected By Weather Conditions*





Marine
      Products’ business is subject to weather patterns that may adversely affect its
      sales. For example, drought conditions, or merely reduced rainfall levels,
      or
      excessive rain, may close area boating locations or render boating dangerous
      or
      inconvenient, thereby curtailing customer demand for our products. In addition,
      unseasonably cool weather and prolonged winter conditions may lead to a shorter
      selling season in some locations. Hurricanes and other storms could cause
      disruptions of our operations or damage to our boat inventories and docking
      facilities, as was the case during the 2005 hurricane season when several
      boating markets were adversely affected.





*Marine
      Products Encounters Intense Competition Which Affects our Sales and
      Profits*





The
      recreational boat industry is highly fragmented, resulting in intense
      competition for customers, dealers and boat show exhibition space. This
      competition affects both the markets which we currently serve and new markets
      that we may enter in the future. We compete with several large national or
      regional manufacturers that have substantial financial, marketing and other
      resources. Competitive manufacturers have executed a strategy of constructing
      entry-level smaller boats which are constructed in off-shore manufacturing
      plants with lower labor costs. These competitive conditions have contributed
      to
      our inability to pass along our increased manufacturing costs to customers,
      reduced our market share in various selling categories including particularly
      smaller boats, and caused our profit margins to decrease .





10




*Marine
      Products Has Potential Liability for Personal Injury and Property Damage Claims*





The
      products we sell or service may expose Marine Products to potential liabilities
      for personal injury or property damage claims relating to the use of those
      products. Historically, the resolution of product liability claims has not
      materially affected Marine Products’ business. Marine Products maintains product
      liability insurance that it believes to be adequate. However, there can be
      no
      assurance that Marine Products will not experience legal claims in excess of
      its
      insurance coverage or that claims will be covered by insurance. Furthermore,
      any
      significant claims against Marine Products could result in negative publicity,
      which could cause Marine Products’ sales to decline.




*Because
      Marine Products Relies On Third Party Suppliers, Marine Products May Be Unable
      To Obtain Adequate Raw Materials and Components*





Marine
      Products is dependent on third party suppliers to provide raw materials and
      components essential to the construction of its various powerboats. Especially
      critical are the availability and cost of marine engines and commodity raw
      materials used in the manufacture of Marine Products’ boats. While Marine
      Products’ management believes that supplier relationships currently in place are
      sufficient to provide the materials necessary to meet present production
      demands, there can be no assurance that these relationships will continue or
      that the quantity or quality of materials available from these suppliers will
      be
      sufficient to meet Marine Products’ future needs, irrespective of whether Marine
      Products successfully implements its growth and acquisition strategies.
      Disruptions in current supplier relationships or the inability of Marine
      Products to continue to purchase construction materials in sufficient quantities
      and of sufficient quality at acceptable prices to meet ongoing production
      schedules could cause a decrease in sales or a sharp increase in the cost of
      goods sold. Additionally, because of this dependence, the volatility in
      commodity raw materials or current or future price increases in construction
      materials or the inability of Marine Products’ management to purchase
      construction materials required to complete its growth and acquisition
      strategies could cause a reduction in Marine Products’ profit margins or reduce
      the number of powerboats Marine Products may be able to produce for sale.





*Marine
      Products May Be Unable To Identify, Complete or Successfully Integrate
      Acquisitions*





Marine
      Products intends to pursue acquisitions and form strategic alliances that will
      enable Marine Products to acquire complementary skills and capabilities, offer
      new products, expand its customer base, and obtain other competitive advantages.
      There can be no assurance, however, that Marine Products will be able to
      successfully identify suitable acquisition candidates or strategic partners,
      obtain financing on satisfactory terms, complete acquisitions or strategic
      alliances, integrate acquired operations into its existing operations, or expand
      into new markets. Once integrated, acquired operations may not achieve
      anticipated levels of sales or profitability, or otherwise perform as expected.
      Acquisitions also involve special risks, including risks associated with
      unanticipated problems, liabilities and contingencies, diversion of management
      resources, and possible adverse effects on earnings and earnings per share
      resulting from increased interest costs, the issuance of additional securities,
      and difficulties related to the integration of the acquired business. The
      failure to integrate acquisitions successfully may divert management’s attention
      from Marine Products’ existing operations and may damage Marine Products’
relationships with its key customers and suppliers.





*Marine
      Products’ Success Will Depend On Its Key Personnel, and The Loss Of Any Key
      Personnel May Affect Its Powerboat Sales*





Marine
      Products’ success will depend to a significant extent on the continued service
      of key management personnel. The loss or interruption of the services of any
      senior management personnel or the inability to attract and retain other
      qualified management, sales, marketing and technical employees could disrupt
      Marine Products’ operations and cause a decrease in its sales and profit
      margins.





*Marine
      Products’ Ability to Attract and Retain Qualified Employees Is Crucial To Its
      Results of Operations and Future Growth*





Marine
      Products relies on the existence of an available hourly workforce to manufacture
      its products. As with many businesses, we are challenged to find qualified
      employees. There are no assurances that Marine Products will be able to attract
      and retain qualified employees to meet current and/or future growth needs.





11


*If
      Marine Products Is Unable to Comply With Environmental and Other Regulatory
      Requirements, Its Business May Be Exposed to Liability and Fines*





Marine
      Products’ operations are subject to extensive regulation, supervision, and
      licensing under various federal, state, and local statutes, ordinances, and
      regulations. While Marine Products believes that it maintains all requisite
      licenses and permits and is in compliance with all applicable federal, state
      and
      local regulations, there can be no assurance that Marine Products will be able
      to continue to maintain all requisite licenses and permits and comply with
      applicable laws and regulations. The failure to satisfy these and other
      regulatory requirements could cause Marine Products to incur fines or penalties
      or could increase the cost of operations. The adoption of additional laws,
      rules
      and regulations could also increase Marine Products’ costs.





As
      with
      boat construction in general, our manufacturing processes involve the use,
      handling, storage and contracting for recycling or disposal of hazardous or
      toxic substances or wastes. Accordingly, we are subject to regulations regarding
      these substances, and the misuse or mishandling of such substances could expose
      Marine Products to liability or fines.





Additionally,
      certain states have required or are considering requiring a license in order
      to
      operate a recreational boat. While such licensing requirements are not expected
      to be unduly restrictive, regulations may discourage potential first-time
      buyers, thereby reducing future sales.





*Marine
      Products’ Stock Price Has Been Volatile*





Historically,
      the market price of common stock of companies engaged in the boat manufacturing
      industry has been highly volatile. Likewise, the market price of our common
      stock has varied significantly in the past. In addition, the availability of
      Marine Products common stock to the investing public is limited to the extent
      that shares are not sold by the executive officers, directors and their
      affiliates, which could negatively impact the trading price of Marine Products’
common stock, increase volatility and affect the ability of minority
      stockholders to sell their shares. Future sales by executive officers, directors
      and their affiliates of all or a substantial portion of their shares could
      also
      negatively affect the trading price of Marine Products’ common stock.





*Marine
      Products’ Management Has a Substantial Ownership Interest; Public Stockholders
      May Have No Effective Voice In Marine Products’ Management*





The
      Company has elected the “Controlled Corporation” exemption under Rule 303A of
      the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
      Corporation” because 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. As a “Controlled Corporation,” the
      Company need not comply with certain NYSE rules including those requiring a
      majority of independent directors.





Marine
      Products’ executive officers, directors and their affiliates hold directly or
      through indirect beneficial ownership, in the aggregate, approximately 69
      percent of Marine Products’ outstanding shares of common stock. As a result,
      these stockholders effectively control the operations of Marine Products,
      including the election of directors and approval of significant corporate
      transactions such as acquisitions. This concentration of ownership could also
      have the effect of delaying or preventing a third party from acquiring control
      of Marine Products at a premium.





*Provisions
      in Marine Products’ Certificate of Incorporation and Bylaws May Inhibit a
      Takeover of Marine Products*





Marine
      Products’ certificate of incorporation, bylaws and other documents contain
      provisions including advance notice requirements for shareholder proposals
      and
      staggered terms of office for the Board of Directors. These provisions may
      make
      a tender offer, change in control or takeover attempt that is opposed by Marine
      Products’ Board of Directors more difficult or expensive.





**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Properties**





Marine
      Products’ corporate offices are located in Atlanta, Georgia. These offices are
      currently shared with RPC and are leased. The monthly rent paid is allocated
      between Marine Products and RPC. Under this arrangement, Marine Products pays
      approximately $3,000 per month in rent. Marine Products may cancel this
      arrangement at any time after giving a 30 day notice.





12


Chaparral
      owns and maintains approximately 1,065,500 square feet of space utilized for
      manufacturing, research and development, warehouse, and sales office and
      operations in Nashville, Georgia. In addition, the Company leases 83,000 square
      feet of manufacturing space at the Robalo facility in Valdosta, Georgia, under
      a
      long-term arrangement expiring in 2014. Marine Products’ total square footage
      under roof is allocated as follows: manufacturing — 795,000, research and
      development — 67,500, warehousing — 201,000, office and other — 85,000.





**Item
      3. 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 ultimate outcome of
      such
      litigation will have a material adverse effect on its liquidity, financial
      condition or results of operations.





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





There
      were no matters submitted to a vote of security holders during the fourth
      quarter of 2006.





13


**Item
      4A. Executive Officers of the Registrant**





Each
      of
      the executive officers of Marine Products was elected by the Board of Directors
      to serve until the Board of Directors’ meeting immediately following the next
      annual meeting of stockholders or until his or her earlier removal by the Board
      of Directors or his or her resignation. The following table lists the executive
      officers of Marine Products and their ages, offices, and date first elected
      to
      office.




**Name
                and Office with Registrant**
            **Age**
            **Date
                First Elected**
              **to
                Present Office**R.
                Randall Rollins (1)
            75
            2/28/01Chairman
                of the BoardRichard
                A. Hubbell (2)
            62
            2/28/01President
                and Chief Executive OfficerJames
                A. Lane, Jr. (3)
            64
            2/28/01Executive
                Vice President and President of Chaparral Boats, Inc.Linda
                H. Graham (4)
            70
            2/28/01Vice
                President and SecretaryBen
                M. Palmer (5)
            46
            2/28/01Vice
                President, Chief Financial Officer and Treasurer





(1)
            R.
                Randall Rollins began working for Rollins, Inc. (consumer services)
                in
                1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr.
                Rollins was elected Chairman of the Board and Chief Executive Officer
                of
                RPC. He remains Chairman of RPC and stepped down from the position
                of
                Chief Executive Officer effective April 22, 2003. He has served as
                Chairman of the Board of Marine Products since February 2001 and
                Chairman
                of the Board of Rollins, Inc. since October 1991. He is also a director
                of
                Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports,
                Inc. and
                until April 2004, he served as a director of SunTrust Banks, Inc.
                and
                SunTrust Banks of Georgia.




(2)
            Richard
                A. Hubbell has been the President and Chief Executive Officer of
                Marine
                Products since it was spun off in February 2001. He has also been
                the
                President of RPC since 1987 and its Chief Executive Officer since
                April
                22, 2003. Mr. Hubbell serves on the Board of Directors for both of
                these
                companies.





(3)
            James
                A. Lane, Jr., has held the position of President of Chaparral Boats
                (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive
                Vice President and Director of Marine Products since it was spun
                off in
                2001. He is also a director of RPC and has served in that capacity
                since
                1987.





(4)
            Linda
                H. Graham has been Vice President and Secretary of Marine Products
                since
                it was spun off in 2001, and Vice President and Secretary of RPC
                since
                1987. Ms. Graham serves on the Board of Directors for both of these
                companies.





(5)
            Ben
                M. Palmer has been Vice President, Chief Financial Officer and Treasurer
                of Marine Products since it was spun off in 2001 and has served the
                same
                roles at RPC since 1996.




14


**PART
      II**





**Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**





Marine
      Products’ common stock is listed for trading on the New York Stock Exchange
      under the symbol “MPX.” All share and dividends per share data disclosed below
      have been restated for the three-for-two stock split effective March 10, 2005.
      At February 15, 2007, there were 38,236,233 shares of common stock outstanding.





At
      the
      close of business on February 15, 2007, there were approximately 4,200 holders
      of record of the Company’s common stock. The high and low prices of Marine
      Products’ common stock and dividends paid for each quarter in the years ended
      December 31, 2006 and 2005 were as follows:





**2006**
            
            **2005****Quarter**
            
            **High**
            
            **Low**
            
            **Dividends**
            
            **High**
            
            **Low**
            
            **Dividends**First
            
            $
            12.35
            
            $
            10.10
            
            $
            0.05
            
            $
            21.40
            
            $
            15.94
            
            $
            0.04Second
            
            
            11.02
            
            
            8.98
            
            
            0.05
            
            
            17.52
            
            
            11.90
            
            
            0.04Third
            
            
            9.98
            
            
            7.65
            
            
            0.05
            
            
            15.10
            
            
            10.55
            
            
            0.04Fourth
            
            $
            12.28
            
            $
            9.14
            
            $
            0.05
            
            $
            12.80
            
            $
            9.25
            
            $
            0.04





At
      the
      January 23, 2007 Board of Directors’ Meeting, the Board approved an increase in
      the quarterly cash dividend, from $0.05 to $0.06. 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.





15




*Performance
      Graph*




The
      following graph shows a five-year comparison of the cumulative total stockholder
      return based on the performance of the stock of the Company, assuming dividend
      reinvestment, as compared with both a broad equity market index and an industry
      or peer group index. The
      indices included in the following graph are the Russell 2000 Index (“Russell
      2000”) and a peer group which includes companies that are considered peers of
      the Company (“Peer Group”). The
      companies included in the peer group have been weighted according to each
      respective issuer's stock market capitalization at the beginning of each year.
      The companies are Brunswick Corporation and MarineMax, Inc.





The
      Russell 2000 is used because the Company became a component of the Russell
      2000
      in 2004, and because the Russell 2000 is a stock index representing small
      capitalization U.S. stocks. During 2006 the components of the Russell 2000
      had
      an average market capitalization of $1.25 billion.





The
      graph
      below assumes the value of $100.00 invested on December 31, 2001.










16


**Item
        6. Selected Financial Data**
 
 The
        following table summarizes certain selected financial data of Marine Products.
        The historical information may not be indicative of Marine Products’ future
        results of operations. The information set forth below should be read in
        conjunction with “Management’s Discussion and Analysis of Financial Condition
        and Results of Operations” and the Consolidated Financial Statements and the
        notes thereto included elsewhere in this document.
  **Years
                    Ended December 31,****(In
                    thousands, except share, per share and employee data)****2006**
                
                **2005**
                
                **2004**
                
                **2003**
                
                **2002****Statement
                    of Income Data:**Net
                    sales
                
                $
                261,378
                
                $
                272,057
                
                $
                252,418
                
                $
                193,980
                
                $
                162,682Cost
                    of goods sold
                
                
                201,971
                
                
                202,936
                
                
                186,832
                
                
                143,663
                
                
                125,282Gross
                    profit
                
                
                59,407
                
                
                69,121
                
                
                65,586
                
                
                50,317
                
                
                37,400Selling,
                    general and administrative expenses
                
                
                32,474
                
                
                33,557
                
                
                29,810
                
                
                23,015
                
                
                18,018Operating
                    income
                
                
                26,933
                
                
                35,564
                
                
                35,776
                
                
                27,302
                
                
                19,382Interest
                    income
                
                
                2,502
                
                
                1,330
                
                
                590
                
                
                501
                
                
                600Income
                    before income taxes
                
                
                29,435
                
                
                36,894
                
                
                36,366
                
                
                27,803
                
                
                19,982Income
                    tax provision
                
                
                9,121
                
                
                10,671
                
                
                12,623
                
                
                9,731
                
                
                7,593**Net
                    income**
                
                $
                20,314
                
                $
                26,223
                
                $
                23,743
                
                $
                18,072
                
                $
                12,389**Earnings
                    per share:**Basic
                
                $
                0.54
                
                $
                0.69
                
                $
                0.62
                
                $
                0.47
                
                $
                0.32Diluted
                
                $
                0.52
                
                $
                0.65
                
                $
                0.58
                
                $
                0.45
                
                $
                0.31**Dividends
                    paid per share**
                
                $
                0.20
                
                $
                0.16
                
                $
                0.11
                
                $
                0.07
                
                $
                0.03**Other
                    Financial and Operating Data:**Gross
                    profit margin percent
                
                
                22.7
                %
                
                25.4
                %
                
                26.0
                %
                
                25.9
                %
                
                23.0
                %Operating
                    margin percent
                
                
                10.3
                %
                
                13.1
                %
                
                14.2
                %
                
                14.1
                %
                
                11.9
                %Net
                    cash provided by operating activities
                
                $
                23,997
                
                $
                19,366
                
                $
                29,405
                
                $
                17,828
                
                $
                11,696Net
                    cash provided by (used for) investing activities
                
                
                1,351
                
                
                (2,023
                )
                
                (1,924
                )
                
                (4,432
                )
                
                2,860Net
                    cash used for financing activities
                
                
                (8,494
                )
                
                (26,356
                )
                
                (7,110
                )
                
                (4,432
                )
                
                (2,229
                )Capital
                    expenditures
                
                $
                1,667
                
                $
                1,118
                
                $
                2,838
                
                $
                3,707
                
                $
                3,800Employees
                    at end of year
                
                
                1,089
                
                
                1,065
                
                
                1,187
                
                
                975
                
                
                867Factory
                    and administrative space at end of year (square ft.)
                
                
                1,149
                
                
                1,149
                
                
                1,146
                
                
                1,128
                
                
                898**Balance
                    Sheet Data at end of year:**Cash
                    and cash equivalents
                
                $
                54,456
                
                $
                37,602
                
                $
                46,615
                
                $
                26,244
                
                $
                17,280Marketable
                    securities — current
                
                
                652
                
                
                1,323
                
                
                132
                
                
                1,402
                
                
                1,929Marketable
                    securities — non-current
                
                
                3,715
                
                
                5,893
                
                
                6,202
                
                
                5,930
                
                
                4,865Inventories
                
                
                29,556
                
                
                26,856
                
                
                25,869
                
                
                21,770
                
                
                20,685Working
                    capital
                
                
                76,506
                
                
                61,341
                
                
                61,989
                
                
                45,984
                
                
                33,390Property,
                    plant and equipment, net
                
                
                16,641
                
                
                17,252
                
                
                18,362
                
                
                17,761
                
                
                16,216Total
                    assets
                
                
                124,179
                
                
                108,805
                
                
                109,734
                
                
                86,314
                
                
                71,063Total
                    stockholders’ equity
                
                $
                101,401
                
                $
                87,688
                
                $
                87,372
                
                $
                69,966
                
                $
                56,833




17




**Item
        7. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 The
        following discussion is based upon and should be read in conjunction with
        “Selected Financial Data” and “Financial Statements and Supplementary Data.” See
        also “Forward-Looking Statements” on page 2.
  **Overview**
 
 Marine
        Products, 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. Most of these dealers finance their inventory through
        third-party floorplan lenders, who pay Marine Products upon delivery of the
        products to the dealers.
  We
        manage
        our Company by focusing on the execution of the following business and financial
        strategies:
 
 ·
            Manufacturing
                high-quality, stylish, and innovative powerboats for our dealers
                and
                retail customers,  ·
            Providing
                our independent dealer network appropriate incentives, training,
                and other
                support to enhance their success and their customers’ satisfaction,
                thereby facilitating their continued relationship with us,  ·
            Managing
                our production and dealer order backlog to maximize profitability
                and
                reduce risk in the event of a downturn in sales of our
                products,  ·
            Maintaining
                a flexible, variable cost structure which can be reduced quickly
                when
                deemed appropriate,  ·
            Focusing
                on the competitive nature of the boating business and designing our
                products and strategies in order to grow and maintain profitable
                market
                share,  ·
            Maximizing
                shareholder return by optimizing the balance of cash invested in
                the
                Company’s productive assets, the payment of dividends to shareholders, and
                the repurchase of its common stock on the open
                market,  ·
            Aligning
                the interests of our management and
                shareholders. 
 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, 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 boat, 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.
  During
        2006, the industry continued the trend of lower wholesale and retail sales
        that
        began in the fourth quarter of 2005. The hurricanes in the Gulf of Mexico
        in the
        third quarter of 2005 damaged geographical areas that are popular for boating
        and the boating-related infrastructure in those areas. The severe hurricanes
        impacted consumer sentiment for 2006 because of the expectation that the
        2006
        hurricane season would be as active as the hurricane season in 2005. Although
        the 2006 hurricane season was actually very mild by historical standards,
        this
        was not known until the end of the retail boating season. High fuel prices
        during the beginning of 2006 also contributed to negative consumer sentiment,
        because fluctuation in fuel prices created uncertainty which caused consumers
        to
        be concerned about the potential costs of operating a pleasure boat. These
        industry conditions were reflected in our 2006 production levels, which were
        lower than in 2005 in order to maintain appropriate dealer inventories and
        backlog.
  18




We
        monitor our market share in the 18 to 35 foot sterndrive category as one
        indicator of the success of our strategies and the market’s acceptance of our
        products. For the nine months ended September 30, 2006 (latest data available
        to
        us), Chaparral’s market share in the 18 to 35 foot sterndrive category was 8.1
        percent, a decline from our market share in the same category for the twelve
        months ended December 31, 2005 of 8.3 percent. This decline was concentrated
        in
        the smaller 18 to 20 foot size boats in our market. We believe this was the
        result of two factors: the execution of our stated strategy of selling larger,
        more profitable boats, and the strategy of certain of our competitors, who
        have
        built and sold a large number of entry-level smaller boats which are constructed
        in offshore manufacturing plants with lower cost labor. Although we will
        continue to monitor our market share and believe it to be important, we also
        believe that maximizing profitability takes precedence over growing our market
        share.
 
 **Outlook**
  Management
        believes that realizing growth in net sales and profits in 2007 will be a
        challenge. This belief is based on lower attendance and sales during the
        first
        part of the 2007 winter boat show season compared to the same period in 2006.
        In
        addition, management believes that consumers are concerned about fluctuating
        fuel prices and a possible slowing economy. Boat show attendance has
        historically been positively correlated with retail boat sales later in the
        selling season because consumers attend shows due to their interest in
        recreational boating and make initial purchasing decisions at a boat show
        exhibition. However, there can be no assurance that this relationship will
        continue in 2007 or subsequent years. Pleasure boating is a discretionary
        consumer activity, and can be negatively impacted by many factors; therefore,
        an
        increase in interest rates, the expectation of high fuel costs, or a decline
        in
        consumer confidence could have a serious and immediate negative impact on
        net
        sales and profits. Over the past several years, Marine Products as well as
        other
        manufacturers have been improving their customer service capabilities, marketing
        strategies and sales promotions in order to attract more consumers to
        recreational boating as well as improve consumers’ boating experiences. In
        addition, the recreational boating industry has started a promotional program
        which involves advertising and consumer targeting efforts, as well as other
        activities designed to increase the potential consumer market for pleasure
        boats. Many manufacturers, including Marine Products, are participating in
        this
        program. Management believes that these efforts will benefit the industry
        and
        Marine Products, but could result in increased advertising and other selling,
        general and administrative expenses during 2007.
  Our
        ability to maintain or improve our net sales and profits in 2007 will depend
        on
        a number of factors, including interest rates, fuel costs, consumer confidence,
        the continued acceptance of our products in the recreational boating market,
        our
        ability to compete in the competitive pleasure boating industry, and the
        costs
        of certain of our raw materials.
 
 **Results
        of Operations**
  **($’s
                    in thousands)**
                
                **2006**
                
                **2005**
                
                **2004**Total
                    number of boats sold
                
                
                6,245
                
                
                7,292
                
                
                7,310Average
                    gross selling price per boat
                
                $
                41.1
                
                $
                37.3
                
                $
                34.9Net
                    sales
                
                $
                261,378
                
                $
                272,057
                
                $
                252,418Percentage
                    of gross profit to net sales
                
                
                22.7
                %
                
                25.4
                %
                
                26.0
                %Percentage
                    of selling, general and administrative expense to net sales
                
                
                12.4
                %
                
                12.3
                %
                
                11.8
                %Operating
                    income
                
                $
                26,933
                
                $
                35,564
                
                $
                35,776Warranty
                    expense
                
                $
                6,714
                
                $
                4,929
                
                $
                4,789


19




*Year
        Ended December 31, 2006 Compared To Year Ended December 31,
        2005*
 
 *Net
        Sales.* Marine
        Products’ net sales decreased by $10.7 million or 3.9 percent in 2006 compared
        to 2005. The decrease was due to a 14.4 percent decrease in the number of
        boats
        sold, partially offset by an increase in the average gross selling price
        per
        boat and an increase in parts and accessories sales. A 10.2 percent increase
        in
        average gross selling price per boat was due to higher sales of larger boats,
        in
        addition to overall price increases that were implemented for the 2007 model
        year, which began in the third quarter, and to a lesser extent, a price increase
        of approximately one percent that took effect in January 2006 to offset the
        higher cost of materials.
 
 *Cost
        of Goods Sold.* Cost
        of
        goods sold decreased 0.5 percent in 2006 compared to 2005, less than the
        decrease in net sales. As a percentage of net sales, cost of goods increased
        in
        2006 compared to 2005, primarily due to higher costs of raw materials and
        accessories costs coupled with production inefficiencies due to lower production
        volumes.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses decreased 3.2 percent in 2006 compared
        to
        2005. The decrease in selling, general and administrative expenses resulted
        from
        costs that vary with the level of Company sales and profitability, such as
        incentive compensation, partially offset by an increase in warranty expense.
        Warranty expense increased in 2006 due to adjustments based on a review of
        recent claims experience to reflect changes in estimated costs per claim,
        due
        primarily to higher labor rates and parts cost. Warranty expense was 2.6
        percent
        of net sales in 2006 and 1.8 percent of net sales in 2005.
 
 *Interest
        Income.* Interest
        income was $2.5 million in 2006 compared to $1.3 million in 2005. Marine
        Products generates interest income from investment of its available cash
        primarily in overnight and marketable securities. The increase in interest
        income resulted primarily from higher investable cash balances and higher
        percentage yields, consistent with recent increases in short-term interest
        rates.
 
 *Income
        Tax Provision.* The
        higher effective tax rate in 2006 of 30.9 percent compared to 28.9 percent
        in
        2005 resulted from the one time effect of refunds in 2005 resulting from
        amended
        returns and reduced benefits from tax credits resulting from slightly reduced
        production activities in 2006.
 
 *Year
        Ended December 31, 2005 Compared To Year Ended December 31,
        2004*
 
 *Net
        Sales.* Marine
        Products’ net sales increased by $19.6 million or 7.8 percent in 2005 compared
        to 2004. The increase was due to a 6.9 percent increase in the average gross
        selling price per boat, and an increase in parts and accessories sales offset
        by
        a slight decrease in the number of boats sold. The increase in average gross
        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.
        The
        increase in parts and accessories sales was a result of high demand for
        accessories ordered on base model boats and the higher numbers of boats sold
        in
        prior years that are still in operation and require routine maintenance and
        repair.
 
 *Cost
        of Goods Sold.* Cost
        of
        goods sold increased 8.6 percent in 2005 compared to 2004, slightly higher
        than
        the increase in net sales. As a percentage of net sales, cost of goods sold
        increased slightly in 2005 compared to 2004, primarily due to increases in
        the
        cost of certain materials and components. Also contributing to the increase
        was
        higher transportation costs, primarily fuel, in 2005 compared to 2004.
 
 *Selling,
        General and Administrative Expenses.* Selling,
        general and administrative expenses increased 12.6 percent in 2005 compared
        to
        2004. The increase in selling, general and administrative expenses resulted
        from
        costs that vary with increased sales and profitability, such as incentive
        compensation, sales commissions and warranty expense, in addition to increased
        costs associated with public company compliance. Also contributing to the
        increase were the costs associated with listing the Company shares for trading
        on the New York Stock Exchange.
 
 Warranty
        expense increased in 2005 due to increased sales and was 1.8 percent of net
        sales in 2005 and 1.9 percent of net sales in 2004. The expenses decreased
        as a
        percentage of sales due to quality improvement initiatives coupled with a
        focus
        on claims management processes.
 
 *Interest
        Income.* Interest
        income was $1.3 million in 2005 compared to $0.6 million in 2004. Marine
        Products generates interest income from investment of its available cash
        primarily in overnight and marketable securities. The increase in interest
        income resulted primarily from higher percentage yields, consistent with
        recent
        increases in short-term interest rates, partially offset by lower investable
        cash balances.
 
 20
 *Income
        Tax Provision.* The
        lower
        effective tax rate in 2005 of 28.9 percent compared to 34.7 percent in 2004
        resulted from the benefit of the new manufacturing deduction created by the
        American Jobs Creation Act of 2004 and a contingency adjustment. 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
        and a tax benefit from a reduction in certain state tax liabilities.
  **Liquidity
        and Capital Resources**
 
 *Cash
        and Cash Flows*
 
 The
        Company’s cash and cash equivalents were $54.5 million at December 31, 2006,
        $37.6 million at December 31, 2005 and $46.6 million at December 31,
        2004.
 
 The
        following table sets forth the historical cash flows for the twelve months
        ended
        December 31:
  **(in
                    thousands)**
                
                **2006**
                
                **2005**
                
                **2004**Net
                    cash provided by operating activities
                
                $
                23,997
                
                $
                19,366
                
                $
                29,405Net
                    cash provided by (used for) investing activities
                
                
                1,351
                
                
                (2,023
                )
                
                (1,924
                )Net
                    (cash used) for financing activities
                
                $
                (8,494
                )
                $
                (26,356
                )
                $
                (7,110
                )




2006
 
 Cash
        provided by operating activities increased by $4.6 million in 2006 compared
        to
        2005 as a result of an increase in other accrued expenses together with
        decreases in accounts receivable and income taxes receivable, all due to
        timing
        differences, offset by lower operating income.
 
 In
        2006,
        $2.9 million in net sales of marketable securities offset primarily by $1.7
        million in capital expenditures resulted in $1.4 million of cash provided
        by
        investing activities. Cash used for investing activities in 2005 was comprised
        of $1.1 million in capital expenditures and $0.9 million in net purchases
        of
        marketable securities.
 
 Cash
        used
        for financing activities decreased $17.9 million in 2006 compared to 2005
        due
        primarily to a decrease of $19.3 million in cash used to purchase the Company’s
        common stock in the open market partially offset by an increase in the cash
        dividends paid per common share.
 
 2005
 
 Cash
        provided by operating activities decreased by $10.0 million in 2005 compared
        to
        2004. Higher operating income in 2005 was offset by increased working capital
        requirements primarily due to an increase in accounts receivable and decreases
        in accounts payable and accrued expenses, each resulting from timing
        differences.
 
 Cash
        used
        for investing activities was comparable in 2005 and 2004 at approximately
        $2.0
        million. The $1.7 million decrease in capital expenditures was offset by
        $0.9
        million net purchases of marketable securities. Capital expenditures in 2004
        included higher costs than in 2005 to expand manufacturing
        facilities.
 
 Cash
        used
        for financing activities increased $19.2 million in 2005 compared to 2004
        primarily due to an increase of $17.7 million in cash amounts used to purchase
        the Company’s common stock in the open market, and an increase from $0.027 to
        $0.04 in quarterly dividends declared per common share.
  21
  *Cash
        Requirements*
 
 Management
        expects that capital expenditures during 2007 will be approximately $3.0
        million, and are expected to include investment towards enhancements to certain
        manufacturing plants and the addition of a parts warehouse.
 
 We
        expect
        that additional contributions to the defined benefit pension plan of
        approximately $0.3 million will be required in 2007 to achieve the Company’s
        funding objective.
 
 At
        the
        January 23, 2007 Board of Directors’ meeting, the Board approved an increase in
        the cash dividend per common share from $0.05 to $0.06. Based on the shares
        outstanding on December 31, 2006, the aggregate annual dividends to be paid
        at
        this dividend rate would be approximately $9.1 million. 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 an agreement with two employees, which provides for a monthly
        payment to each of the employees equal to 10 percent of profits (defined
        as
        pretax income before goodwill amortization and certain allocated corporate
        expenses).
 
 The
        Company has purchased a total of 2,650,357 shares in the open market and
        as of
        December 31, 2006 can purchase 2,599,643 additional shares under its
        repurchase program.
 
 The
        Company believes that the liquidity provided by its existing cash and cash
        equivalents, overall capitalization and cash expected to be generated from
        operations will provide sufficient capital to meet its requirements for at
        least
        the next twelve months.
 
 **Contractual
        Obligations**
 
 The
        following table summarizes the Company’s contractual obligations as of December
        31, 2006:
  **Payments
                    due by period****Contractual
                    Obligations**
                
                **Total**
                
                **Less**
                  **than
                    1**
                  **year**
                
                **1-3**
                  **years**
                
                **3-5**
                  **years**
                
                **More**
                  **than
                    5 years**Long-term
                    debt
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Capital
                    lease obligation
                
                
                239,257
                
                
                —
                
                
                —
                
                
                —
                
                
                239,257Operating
                    leases (1)
                
                
                92,124
                
                
                37,007
                
                
                55,117
                
                
                —
                
                
                —Purchase
                    obligations (2)
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Other
                    long-term liabilities (3)
                
                
                250,000
                
                
                250,000
                
                
                —
                
                
                —
                
                
                —Total
                
                $
                581,381
                
                $
                287,007
                
                $
                55,117
                
                $
                —
                
                $
                239,257




(1)
              Operating
                  leases represent agreements for various office equipment.
  (2)
              As
                  part of the normal course of business the Company enters into purchase
                  commitments to manage its various operating needs. However, the
                  Company
                  does not have any obligations that are non-cancelable or subject
                  to a
                  penalty if canceled.
  (3)
              Includes
                  expected cash payments for long-term liabilities reflected on the
                  balance
                  sheet where the timing of the payment is known. These amounts include
                  primarily known pension plan funding obligations. These amounts
                  exclude
                  pension obligations with uncertain funding requirements and deferred
                  compensation liabilities.




**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 may become
        effective in the case of default by one or more dealers. The agreements provide
        for the lender to return 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. The maximum contractual
        obligation and the amount outstanding under these agreements, which expire
        in
        2007, was $3.5 million as of December 31, 2006. The Company has recorded
        the
        estimated fair value of this guarantee; at December 31, 2006, this amount
        is
        immaterial and did not change from the prior year.
  22




During
        the fourth quarter of 2005, a dealer defaulted on its debt obligation to
        a floor
        plan lender related to approximately $5 million of boat inventory. During
        2006,
        the Company assisted the lender in coordinating the redistribution of these
        boats among existing and replacement dealers. The ultimate cost to the Company
        for these transactions and the impact on sales was not material .
 
 **Related
        Party Transactions**
 
 In
        conjunction with its spin-off from RPC in 2001, the Company and RPC entered
        into
        various agreements that define the companies’ relationship after the spin-off.
 
 The
        Transition Support Services Agreement provides for RPC to provide certain
        services, including financial reporting and income tax administration,
        acquisition assistance, etc., to Marine Products until the agreement is
        terminated by either party. Marine Products reimbursed RPC for its estimated
        allocable share of administrative costs incurred for services rendered on
        behalf
        of Marine Products totaling $739,000 in 2006, $616,000 in 2005 and $546,000
        in
        2004. The Company’s liability to RPC for these services as of December 31, 2006
        and 2005 was approximately $236,000 and $66,000. The Company’s directors are
        also directors of RPC and all of the executive officers with the exception
        of
        one director are employees of both the Company and RPC.
 
 The
        Employee Benefits Agreement provides for, among other things, the Company’s
        employees to continue participating subsequent to the spin-off in two RPC
        sponsored benefit plans, specifically, the defined contribution 401(k) plan
        and
        the defined benefit retirement income plan.
 
 The
        Tax
        Sharing and Indemnification Agreement provides for, among other things, the
        treatment of income tax matters for periods through the date of the spin-off
        and
        responsibility for any adjustments as a result of audit by any taxing authority.
        The general terms provide for the indemnification for any tax detriment incurred
        by one party caused by the other party’s action. In accordance with the
        agreement, RPC transferred approximately $19,000 in 2004 to the Company related
        to tax settlements.
 
 **Critical
        Accounting Policies**
 
 The
        consolidated financial statements are prepared in accordance with accounting
        principles generally accepted in the United States, which require significant
        judgment by management in selecting the appropriate assumptions for calculating
        accounting estimates. These judgments are based on our historical experience,
        terms of existing contracts, trends in the industry, and information available
        from other outside sources, as appropriate. Senior management has discussed
        the
        development, selection and disclosure of its critical accounting estimates
        with
        the Audit Committee of our Board of Directors. The Company believes that,
        of its
        significant accounting policies, the following may involve a higher degree
        of
        judgment and complexity.
 
 Sales
        recognition - The Company sells its boats through its network of independent
        dealers. Sales orders used to plan production are firm indications of interest
        from dealers and are cancelable at any time, although very few orders are
        cancelled after they have been placed. The Company recognizes sales when
        all the
        following conditions are met: (1) a fully executed sales agreement exists,
        (2)
        the price of the boat is established, (3) the dealer takes delivery of the
        boat,
        and (4) collectibility of the sales price is reasonably assured.
 
 Sales
        incentives and discounts - The Company records incentives as a reduction
        of
        sales. Using historical trends, adjusted for current changes, the Company
        estimates the amount of incentives that will be paid in the future on boats
        sold
        and accrues an estimated liability. The Company offers various incentives
        that
        promote sales to dealers, and to a lesser extent, retail customers. These
        incentives are designed to encourage timely replenishment of dealer inventories
        after peak selling seasons, stabilize manufacturing volumes throughout the
        year,
        and improve production model mix. The dealer incentive programs are a
        combination of annual volume commitment discounts, and additional discounts
        at
        time of invoice for those dealers who do not finance their inventory through
        specified floor plan financing agreements. The annual dealer volume discounts
        are based on July 1 through June 30 model year purchases. In addition, the
        Company offers at various times other time-specific or model-specific
        incentives. The retail incentive programs have historically been used during
        off-peak selling seasons in addition to the winter boat exhibition shows.
  23
  The
        factors that complicate the calculation of the cost of these incentives are
        the
        ability to forecast sales of the Company and individual dealers, the volume
        and
        timing of inventory financed by specific dealers, identification of which
        boats
        have been sold subject to an incentive, and the estimated lag time between
        sales
        and payment of incentives. Settlement of the incentives generally occurs
        from
        three to twelve months after the sale. The Company regularly analyzes the
        historical incentive trends and makes adjustments
        to recorded liabilities for changes in trends and terms of incentive programs.
        Total incentives as a percentage of gross sales were 13.3 percent in 2006,
        13.0
        percent in 2005 and 12.9 percent in 2004. A 0.25 percentage point change
        in
        incentives as a percentage of gross sales during 2006 would have increased
        or
        decreased net sales, gross margin and operating income by approximately $0.8
        million.
 
 Warranty
        costs -The Company records as part of selling, general and administrative
        expense an experience based estimate of the future warranty costs to be incurred
        when sales are recognized. The Company evaluates its warranty obligation
        on a
        model year basis. The Company provides warranties against manufacturing defects
        for various components of the boats, primarily the fiberglass deck and hull,
        with warranty periods extending up to 10 years. Warranty costs, if any, on
        other
        components of the boats are generally absorbed by the original component
        manufacturer. Warranty costs can vary depending upon the size and number
        of
        components in the boats sold, the pre-sale warranty claims, and the desired
        level of customer service. While we focus on high quality manufacturing programs
        and processes, including actively monitoring the quality of our component
        suppliers and managing the dealer and customer service warranty experience
        and
        reimbursements, our estimated warranty obligation is based upon the warranty
        terms and our enforcement of those terms over time, defects, repair costs,
        and
        the volume and mix of boat sales. The estimate of warranty costs is regularly
        analyzed and is adjusted based on several factors including the actual claims
        that occur. Warranty expense as a percentage of net sales was 2.6 percent
        in
        2006, 1.8 percent for 2005 and 1.9 percent in 2004. Warranty expense as a
        percentage of net sales has increased in 2006 compared to 2005 because of
        adjustments based on reviews of recent claims experience. These adjustments
        reflect changes in estimated costs per claim due primarily to higher labor
        rates
        and parts costs. A 0.10 percentage point increase in the estimated warranty
        expense as a percentage of net sales during 2006 would have increased selling,
        general and administrative expenses and reduced operating income by
        approximately $0.3 million.
 
 Income
        taxes— The effective income tax rates were 30.9 percent in 2006, 28.9 percent in
        2005, and 34.7 percent in 2004. Our effective tax rates vary due to changes
        in
        estimates of our future taxable income, fluctuations in the tax jurisdictions
        in
        which our earnings and deductions are realized, and favorable or unfavorable
        adjustments to our estimated tax liabilities related to proposed or probable
        assessments. As a result, our effective tax rate may fluctuate significantly
        on
        a quarterly or annual basis.
 
 We
        establish a valuation allowance against the carrying value of deferred tax
        assets when we determine that it is more likely than not that the asset will
        not
        be realized through future taxable income. Such amounts are charged to earnings
        in the period in which we make such determination. Likewise, if we later
        determine that it is more likely than not that the net deferred tax assets
        would
        be realized, we would reverse the applicable portion of the previously provided
        valuation allowance. We have considered future market growth, forecasted
        earnings, future taxable income, the mix of earnings in the jurisdictions
        in
        which we operate, and prudent and feasible tax planning strategies in
        determining the need for a valuation allowance.
 
 We
        calculate our current and deferred tax provision based on estimates and
        assumptions that could differ from the actual results reflected in income
        tax
        returns filed during the subsequent year. Adjustments based on filed returns
        are
        recorded when identified, which is generally in the third quarter of the
        subsequent year for U.S. federal and state provisions. Deferred tax liabilities
        and assets are determined based on the differences between the financial
        and tax
        bases of assets and liabilities using enacted tax rates in effect in the
        year
        the differences are expected to reverse.
 
 The
        amount of income taxes we pay is subject to ongoing audits by federal and
        state
        tax authorities, which often result in proposed assessments. Our estimate
        for
        the potential outcome for any uncertain tax issue is highly judgmental. We
        believe we have adequately provided for any reasonably foreseeable outcome
        related to these matters. However, our future results may include favorable
        or
        unfavorable adjustments to our estimated tax liabilities in the period the
        assessments are made or resolved or when statutes of limitation on potential
        assessments expire. Additionally, the jurisdictions in which our earnings
        or
        deductions are realized may differ from our current estimates.
 
 **Impact
        of Recent Accounting Pronouncements**
 
 In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for
        Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and
        140,” to permit fair value re-measurement for any hybrid financial instrument
        that contains an embedded derivative that otherwise would require bifurcation
        in
        accordance with the provisions of SFAS 133, “Accounting for Derivative
        Instruments and Hedging Activities.” The Company will adopt SFAS 155 in fiscal
        year 2007. The adoption of this Statement is not expected to have a material
        effect on the Company’s
        consolidated results of operations and financial condition .
  24
  In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
        Assets—an amendment of FASB Statement No. 140,” that provides guidance on
        accounting for separately recognized servicing assets and servicing liabilities.
        In accordance with the provisions of SFAS 156, separately recognized servicing
        assets and servicing liabilities must be initially measured at fair value,
        if
        practicable. Subsequent to initial recognition, the Company may use either
        the
        amortization method or the fair value measurement method to account for
        servicing assets and servicing liabilities within the scope of this Statement.
        The Company will adopt SFAS 156 in fiscal year 2007. The adoption of this
        Statement is not expected to have a material effect on the Company’s
        consolidated results of operations and financial condition .
 
 In
        June
        2006, the FASB issued Financial Interpretation No. ("FIN") 48, “Accounting for
        Uncertainty in Income Taxes - an interpretation of FASB Statement 109.” FIN 48
        prescribes a recognition threshold and a measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. This interpretation also provides guidance on
        de-recognition, classification, interest and penalties accounting in interim
        periods, disclosure and transition. This interpretation is effective for
        fiscal
        years beginning after December 15, 2006. The Company is currently evaluating
        the
        impact of applying the provisions of FIN 48.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
        provides guidance for using fair value to measure assets and liabilities.
        Under
        SFAS 157, fair value refers to the price that would be received to sell an
        asset
        or paid to transfer a liability in an orderly transaction between market
        participants in the market in which the reporting entity transacts. SFAS
        157
        establishes a fair value hierarchy that prioritizes the information used
        to
        develop the assumptions that market participants would use when pricing the
        asset or liability. The fair value hierarchy gives the highest priority to
        quoted prices in active markets and the lowest priority to unobservable data.
        In
        addition, SFAS 157 requires that fair value measurements be separately disclosed
        by level within the fair value hierarchy. This standard will be effective
        for
        financial statements issued for fiscal periods beginning after November 15,
        2007
        and interim periods within those fiscal years. The Company is currently
        evaluating the impact of applying the various provisions of SFAS 157.
 
 In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements
        No. 87, 88, 106, and 132(R).” This
        Statement improves financial reporting by requiring an employer to recognize
        the
        over-funded or under-funded status of a defined benefit pension plan (other
        than
        a multiemployer plan) as an asset or liability in its statement of financial
        position and to recognize changes in that funded status in the year in which
        the
        changes occur through comprehensive income. This Statement requires the Company
        to measure the funded status of a plan as of the date of its year-end statement
        of financial position, with limited exceptions. The requirement to recognize
        the
        funded status of a benefit plan and the disclosure requirements are effective
        as
        of the fiscal year ending after December 15, 2006. The requirement to measure
        plan assets and benefit obligations as of the date of the employer’s fiscal
        year-end statement of financial position is effective for fiscal years ending
        after December 15, 2008. The
        Company has adopted the recognition provisions of SFAS 158 as of December
        31,
        2006. See Note 10 to the consolidated financial statements for details. The
        Company currently measures the plan assets and benefit obligations as of
        its
        fiscal year-end and therefore adoption of the measurement provisions will
        not
        have a significant impact on its consolidated results of operation and financial
        condition.
  In
        September
        2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
        Bulletin (“SAB”) 108, “Considering the Effects of Prior Year Misstatements when
        Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB
        108 provides interpretive guidance on how the effects of the carryover or
        reversal of prior year misstatements should be considered in quantifying
        a
        current year misstatement. The SEC staff believes that registrants should
        quantify errors using both a balance sheet and an income statement approach
        and
        evaluate whether either approach results in quantifying a misstatement that,
        when all relevant quantitative and qualitative factors are considered, is
        material. The guidance in SAB 108 must be applied to annual financial statements
        for fiscal years ending after November 15, 2006. The adoption of SAB 108
        did not
        have a material effect on the Company’s
        consolidated results of operations and financial condition .
  In
        September
        2006, the Financial Accounting Standards Board ratified a consensus opinion
        reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-5,
“Accounting for Purchases of Life Insurance - Determining the Amount That
        Could
        Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The guidance
        in EITF 06-5 requires policyholders to consider other amounts included in
        the
        contractual terms of an insurance policy, in addition to cash surrender value,
        for purposes of determining the amount that could be realized under the terms
        of
        the insurance contract. If it is probable that contractual terms would limit
        the
        amount that could be realized under the insurance contract, those contractual
        limitations should be considered when determining the realizable amounts.
        The
        amount that could be realized under the insurance contract should be determined
        on an individual policy (or certificate) level and should include any amount
        realized on the assumed surrender of the last individual policy or certificate
        in a group policy. The consensus in EITF Issue 06-5 is effective for fiscal
        years beginning after December 15, 2006. The Company intends to adopt EITF
        Issue
        06-5 effective January 1, 2007, and does not believe that the adoption will
        have
        a significant effect on its financial statements.
  25
  **Item
        7A. Quantitative and Qualitative Disclosures About Market Risk**
 
 Marine
        Products 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 backed obligations,
        asset backed securities 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.
 
 26




MANAGEMENT’S
        REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 To
        the
        Stockholders of Marine Products Corporation:
 
 The
        management of Marine Products Corporation is responsible for establishing
        and
        maintaining adequate internal control over financial reporting for the Company.
        Marine Products Corporation maintains a system of internal accounting controls
        designed to provide reasonable assurance, at a reasonable cost, that assets
        are
        safeguarded against loss or unauthorized use and that the financial records
        are
        adequate and can be relied upon to produce financial statements in accordance
        with accounting principles generally accepted in the United States of America.
        The internal control system is augmented by written policies and procedures,
        an
        internal audit program and the selection and training of qualified personnel.
        This system includes policies that require adherence to ethical business
        standards and compliance with all applicable laws and regulations.
 
 There
        are
        inherent limitations to the effectiveness of any controls system. A controls
        system, no matter how well designed and operated, can provide only reasonable,
        not absolute, assurance that the objectives of the controls system are met.
        Also, no evaluation of controls can provide absolute assurance that all control
        issues and any instances of fraud, if any, within the Company will be detected.
        Further, the design of a controls system must reflect the fact that there
        are
        resource constraints, and the benefits of controls must be considered relative
        to their costs. The Company intends to continually improve and refine its
        internal controls.
 
 Under
        the
        supervision and with the participation of our management, including our
        principal executive officer and principal financial officer, we conducted
        an
        evaluation of the effectiveness of the design and operations of our internal
        control over financial reporting, as of December 31, 2006 based on criteria
        established in Internal Control—Integrated Framework issued by the Committee of
        Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
        management’s assessment is that Marine Products Corporation maintained effective
        internal control over financial reporting as of December 31, 2006.
 
 The
        independent registered public accounting firm, Grant Thornton LLP, has audited
        the consolidated financial statements as of and for the year ended December
        31,
        2006, and has also issued their report on management’s assessment of the
        Company’s internal control over financial reporting, included in this report on
        page 28.


/s/ Richard
              A. Hubbell
            
            
            /s/ Ben
              M.
              PalmerRichard A. Hubbell
              President
                  and Chief Executive Officer
            
            
            Ben M. Palmer
              Chief
                  Financial Officer and
                  Treasurer




Atlanta,
        Georgia
 February
        27, 2007
  27




**Report
        of Independent Registered Public Accounting Firm on Internal Control over
        Financial Reporting**
 
 Board
        of
        Directors and Stockholders of Marine Products Corporation
 
 We
        have
        audited management’s assessment included in Management’s Report on Internal
        Control Over Financial Reporting included in Marine Products Corporation’s Form
        10-K for 2006, that Marine Products Corporation (a Delaware Corporation)
        and
        subsidiaries (the “Company”) maintained effective internal control over
        financial reporting as of December 31, 2006 based on criteria established
        in
        Internal Control—Integrated Framework issued by the Committee of Sponsoring
        Organizations of the Treadway Commission (COSO).  The Company’s management
        is responsible for maintaining effective internal control over financial
        reporting and for its assessment of the effectiveness of internal control
        over
        financial reporting.  Our responsibility is to express an opinion on
        management’s assessment and an opinion on the effectiveness of the Company’s
        internal control over financial reporting based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects.  Our audit included obtaining an understanding of internal
        control over financial reporting, evaluating management’s assessment, testing
        and evaluating the design and operating effectiveness of internal control,
        and
        performing such other procedures as we considered necessary in the
        circumstances.  We believe that our audit provides a reasonable basis for
        our opinion.
  A
        company’s internal control over financial reporting is a process designed to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles.  A company’s internal
        control over financial reporting includes those policies and procedures that
        (1)
        pertain to the maintenance of records that, in reasonable detail, accurately
        and
        fairly reflect the transactions and dispositions of the assets of the company;
        (2) provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company’s
        assets that could have a material effect on the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements.  Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  In
        our
        opinion, management’s assessment that the Company maintained effective internal
        control over financial reporting as of December 31, 2006, is fairly stated,
        in
        all material respects, based on criteria established in Internal
        Control—Integrated Framework issued by the COSO.  Also in our opinion, the
        Company maintained, in all material respects, effective internal control
        over
        financial reporting as of December 31, 2006, based on criteria established
        in
        Internal Control—Integrated Framework issued by the COSO.
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the consolidated balance sheets of the Company
        as of December 31, 2006 and 2005, and the related consolidated statements
        of
        income, stockholders’ equity, and cash flows for each of the three years in the
        period ended December 31, 2006 and our report dated February 27, 2007 expressed
        an unqualified opinion on those consolidated financial statements.
  
  Atlanta,
        Georgia
 February
        27, 2007
  28
  **Report
        of Independent Registered Public Accounting Firm on Consolidated Financial
        Statements**
 
 Board
        of
        Directors and Stockholders of Marine Products Corporation
 
 We
        have
        audited the accompanying consolidated balance sheets of Marine Products
        Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of
        December 31, 2006 and 2005, and the related consolidated statements of income,
        stockholders’ equity, and cash flows for each of the three years in the period
        ended December 31, 2006. These financial statements are the responsibility
        of
        the Company’s management. Our responsibility is to express an opinion on these
        financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audits to obtain reasonable assurance about whether the
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements. An audit also includes assessing the accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement presentation. We believe that
        our
        audits provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of the Company as of December
        31, 2006 and 2005, and the consolidated results of its operations and its
        consolidated cash flows for each of the three years in the period ended December
        31, 2006 in conformity with accounting principles generally accepted in the
        United States of America.
 
 Our
        audits were conducted for the purpose of forming an opinion on the basic
        consolidated financial statements taken as a whole.  Schedule II, as listed
        in the Index, is presented for purposes of additional analysis and is not
        a
        required part of the basic consolidated financial statements.  This
        schedule has been subjected to the auditing procedures applied in the audits
        of
        the basic consolidated financial statements and, in our opinion, is fairly
        stated in all material respects in relation to the basic consolidated financial
        statements taken as a whole.
 
 As
        described in Note 1 to the consolidated financial statements, the Company
        adopted the recognition provisions of Statement of Financial Accounting
        Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
        132(R)” and also the provisions of Statement of Financial Accounting Standards
        No. 123 (revised 2004), “Share-Based Payment” during 2006.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of the Company’s internal
        control over financial reporting as of December 31, 2006, based on criteria
        established in Internal Control—Integrated Framework issued by the Committee of
        Sponsoring Organizations of the Treadway Commission (COSO) and our report
        dated
        February 27, 2007 expressed an unqualified opinion.
  
 Atlanta,
        Georgia
 February
        27, 2007
  29


**Item
      8. Financial Statements and Supplementary Data**




**CONSOLIDATED
        BALANCE SHEETS**
 **MARINE
          PRODUCTS CORPORATION AND SUBSIDIARIES**
 **(in
            thousands except share information)**




**December
                31,**
            
            **2006**
            
            **2005****ASSETS**Cash
                and cash equivalents
            
            $
            54,456
            
            $
            37,602Marketable
                securities
            
            
            652
            
            
            1,323Accounts
                receivable, net
            
            
            2,980
            
            
            3,662Inventories
            
            
            29,556
            
            
            26,856Income
                taxes receivable
            
            
            834
            
            
            2,528Deferred
                income taxes
            
            
            3,244
            
            
            3,079Prepaid
                expenses and other current assets
            
            
            1,873
            
            
            1,343Current
                assets
            
            
            93,595
            
            
            76,393Property,
                plant and equipment, net
            
            
            16,641
            
            
            17,252Goodwill
            
            
            3,308
            
            
            3,308Other
                intangibles, net
            
            
            465
            
            
            430Marketable
                securities
            
            
            3,715
            
            
            5,893Deferred
                income taxes
            
            
            1,449
            
            
            1,126Other
                assets
            
            
            5,006
            
            
            4,403Total
                assets
            
            $
            124,179
            
            $
            108,805**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Liabilities**Accounts
                payable
            
            $
            3,455
            
            $
            3,461Accrued
                expenses and other liabilities
            
            
            13,634
            
            
            11,591Current
                liabilities
            
            
            17,089
            
            
            15,052Pension
                liabilities
            
            
            4,670
            
            
            4,923Other
                long-term liabilities
            
            
            1,019
            
            
            1,142Total
                liabilities
            
            
            22,778
            
            
            21,117Commitments
                and contingencies**Stockholders’
                Equity**Preferred
                stock, $0.10 par value, 1,000,000 shares authorized, none
                issued
            
            
            —
            
            
            —Common
                stock, $0.10 par value, 74,000,000 shares authorized,
              issued and outstanding - 37,908,188 shares in 2006, 37,697,925 shares
                in
                2005
            
            
            3,791
            
            
            3,770Capital
                in excess of par value
            
            
            13,453
            
            
            16,364Retained
                earnings
            
            
            84,875
            
            
            72,192Deferred
                compensation
            
            
            —
            
            
            (3,540
            )Accumulated
                other comprehensive loss
            
            
            (718
            )
            
            (1,098
            )Total
                stockholders’ equity
            
            
            101,401
            
            
            87,688Total
                liabilities and stockholders’ equity
            
            $
            124,179
            
            $
            108,805





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





30




**CONSOLIDATED
        STATEMENTS OF INCOME**
 **MARINE
          PRODUCTS CORPORATION AND SUBSIDIARIES**
 **(in
            thousands except per share data)**






**Years
                ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004**Net
                sales
            
            $
            261,378
            
            $
            272,057
            
            $
            252,418Cost
                of goods sold
            
            
            201,971
            
            
            202,936
            
            
            186,832Gross
                profit
            
            
            59,407
            
            
            69,121
            
            
            65,586Selling,
                general and administrative expenses
            
            
            32,474
            
            
            33,557
            
            
            29,810Operating
                income
            
            
            26,933
            
            
            35,564
            
            
            35,776Interest
                income
            
            
            2,502
            
            
            1,330
            
            
            590**Income
                before income taxes**
            
            
            29,435
            
            
            36,894
            
            
            36,366Income
                tax provision
            
            
            9,121
            
            
            10,671
            
            
            12,623**Net
                income**
            
            $
            20,314
            
            $
            26,223
            
            $
            23,743**EARNINGS
                PER SHARE**Basic
            
            $
            0.54
            
            $
            0.69
            
            $
            0.62Diluted
            
            $
            0.52
            
            $
            0.65
            
            $
            0.58**Dividends
                paid per share**
            
            **$**
            **0.20**
            
            **$**
            **0.16**
            
            **$**
            **0.11**





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




31





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES**


**(in
      thousands)**




**Three
                Years Ended**
              **December
                31, 2006**
            
            **Comprehensive**
              **Income**
            
            **Common**
              **Shares**
            
            **Stock**
              **Amount**
            
            **Capital
                in**
              **Excess
                of**
              **Par
                Value**
            
            **Retained**
              **Earnings**
            
            **Deferred**
              **Compensation**
            
            **Accumulated**
              **Other**
              **Comprehensive**
              **(Loss)
                Income**
            
            **Total**Balance,
                December 31, 2003
            
            
            
            
            
            38,592
            
            $
            3,859
            
            $
            34,436
            
            $
            32,409
            
            $
            (229
            )
            $
            (509
            )
            $
            69,966Stock
                issued for stock incentive plans, net
            
            
            
            
            
            456
            
            
            46
            
            
            2,854
            
            
            
            
            
            (1,925
            )
            
            
            
            
            975Stock
                purchased and retired
            
            
            
            
            
            (244
            )
            
            (24
            )
            
            (3,912
            )
            
            
            
            
            
            
            
            
            
            
            (3,936
            )Net
                income
            
            $
            23,743
            
            
            
            
            
            
            
            
            
            
            
            23,743
            
            
            
            
            
            
            
            
            23,743Minimum
                pension liability adjustment, net of taxes
            
            
            (301
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (301
            )
            
            (301
            )Unrealized
                loss on securities, net of taxes and reclassification adjustments
            
            
            (94
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (94
            )
            
            (94
            )Comprehensive
                income
            
            $
            23,348Dividends
                declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,110
            )
            
            
            
            
            
            
            
            (4,110
            )Stock-based
                compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            255
            
            
            
            
            
            255Excess
                tax benefits for share-based payments
            
            
            
            
            
            
            
            
            
            
            
            874
            
            
            
            
            
            
            
            
            
            
            
            874Effect
                of stock splits
            
            
            
            
            
            139
            
            
            13
            
            
            (13
            )
            
            
            
            
            
            
            
            
            
            
            —Balance,
                December 31, 2004
            
            
            
            
            
            38,943
            
            
            3,894
            
            
            34,239
            
            
            52,042
            
            
            (1,899
            )
            
            (904
            )
            
            87,372Stock
                issued for stock incentive plans, net
            
            
            
            
            
            278
            
            
            28
            
            
            2,862
            
            
            
            
            
            (2,391
            )
            
            
            
            
            499Stock
                purchased and retired
            
            
            
            
            
            (1,608
            )
            
            (161
            )
            
            (20,728
            )
            
            
            
            
            
            
            
            
            
            
            (20,889
            )Net
                income
            
            $
            26,223
            
            
            
            
            
            
            
            
            
            
            
            26,223
            
            
            
            
            
            
            
            
            26,223Minimum
                pension liability adjustment, net of taxes
            
            
            (178
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (178
            )
            
            (178
            )Unrealized
                loss on securities, net of taxes and reclassification adjustments
            
            
            (16
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (16
            )
            
            (16
            )Comprehensive
                income
            
            $
            26,029Dividends
                declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,073
            )
            
            
            
            
            
            
            
            (6,073
            )Stock-based
                compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            750
            
            
            
            
            
            750Effect
                of stock splits
            
            
            
            
            
            85
            
            
            9
            
            
            (9
            )
            
            
            
            
            
            
            
            
            
            
            —Balance,
                December 31, 2005
            
            
            
            
            
            37,698
            
            
            3,770
            
            
            16,364
            
            
            72,192
            
            
            (3,540
            )
            
            (1,098
            )
            
            87,688Stock
                issued for stock incentive plans, net
            
            
            
            
            
            381
            
            
            38
            
            
            434
            
            
            
            
            
            
            
            
            
            
            
            472Stock
                purchased and retired
            
            
            
            
            
            (171
            )
            
            (17
            )
            
            (1,615
            )
            
            
            
            
            
            
            
            
            
            
            (1,632
            )Net
                income
            
            $
            20,314
            
            
            
            
            
            
            
            
            
            
            
            20,314
            
            
            
            
            
            
            
            
            20,314Minimum
                pension liability adjustment, net of taxes
            
            
            344
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            344
            
            
            344Unrealized
                gain on securities, net of taxes and reclassification adjustments
            
            
            36
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            36
            
            
            36Comprehensive
                income
            
            $
            20,694Dividends
                declared
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (7,631
            )
            
            
            
            
            
            
            
            (7,631
            )Stock-based
                compensation
            
            
            
            
            
            
            
            
            
            
            
            1,514
            
            
            
            
            
            
            
            
            
            
            
            1,514Excess
                tax benefits for share-based payments
            
            
            
            
            
            
            
            
            
            
            
            296
            
            
            
            
            
            
            
            
            
            
            
            296Adoption
                of SFAS 123(R)
            
            
            
            
            
            
            
            
            
            
            
            (3,540
            )
            
            
            
            
            3,540
            
            
            
            
            
            —Balance,
                December 31, 2006
            
            
            
            
            
            37,908
            
            $
            3,791
            
            $
            13,453
            
            $
            84,875
            
            $
            —
            
            $
            (718
            )
            $
            101,401





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




32




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES**


**(in
      thousands)**





**Years
                ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004****OPERATING
                ACTIVITIES**Net
                income
            
            $
            20,314
            
            $
            26,223
            
            $
            23,743Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation and amortization
            
            
            2,130
            
            
            2,268
            
            
            2,277Stock-based compensation expense
            
            
            1,514
            
            
            750
            
            
            255Excess tax benefit for share-based payments
            
            
            (296
            )
            
            —
            
            
            —Deferred income tax benefit
            
            
            (737
            )
            
            (1,970
            )
            
            (784
            )(Increase)
                decrease in assets:Accounts receivable
            
            
            682
            
            
            (2,580
            )
            
            2,888Inventories
            
            
            (2,700
            )
            
            (987
            )
            
            (4,099
            )Prepaid expenses and other current assets
            
            
            (530
            )
            
            (467
            )
            
            (260
            )Income taxes receivable
            
            
            1,990
            
            
            (1,476
            )
            
            787Other non-current assets
            
            
            (603
            )
            
            (1,751
            )
            
            (1,187
            )Increase
                (decrease) in liabilities:Accounts payable
            
            
            (6
            )
            
            (289
            )
            
            1,153Other accrued expenses
            
            
            2,043
            
            
            (1,410
            )
            
            4,242Other long-term liabilities
            
            
            196
            
            
            1,055
            
            
            390Net
                cash provided by operating activities
            
            
            23,997
            
            
            19,366
            
            
            29,405**INVESTING
                ACTIVITIES**Capital
                expenditures
            
            
            (1,667
            )
            
            (1,118
            )
            
            (2,838
            )Proceeds
                from sale of assets
            
            
            113
            
            
            —
            
            
            —Sale
                (purchase) of marketable securities, net
            
            
            2,905
            
            
            (905
            )
            
            914Net
                cash provided by (used for) investing activities
            
            
            1,351
            
            
            (2,023
            )
            
            (1,924
            )**FINANCING
                ACTIVITIES**Payment
                of dividends
            
            
            (7,631
            )
            
            (6,073
            )
            
            (4,110
            )Cash
                paid for common stock purchased and retired
            
            
            (1,337
            )
            
            (20,627
            )
            
            (3,768
            )Excess
                tax benefit for share-based payments
            
            
            296
            
            
            —
            
            
            —Proceeds
                received upon exercise of stock options
            
            
            178
            
            
            344
            
            
            768Net
                cash used for financing activities
            
            
            (8,494
            )
            
            (26,356
            )
            
            (7,110
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            16,854
            
            
            (9,013
            )
            
            20,371Cash
                and cash equivalents at beginning of year
            
            
            37,602
            
            
            46,615
            
            
            26,244Cash
                and cash equivalents at end of year
            
            $
            54,456
            
            $
            37,602
            
            $
            46,615





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




33




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 **NOTE
        1: SIGNIFICANT ACCOUNTING POLICIES**
 
 *Basis
        of Consolidation and Presentation* —
The
        consolidated financial statements include the accounts of Marine Products
        Corporation (a Delaware corporation) and its wholly owned subsidiaries (“Marine
        Products” or the “Company”). Marine Products, through Chaparral Boats, Inc.
        (“Chaparral”) and Robalo Acquisition Company LLC (“Robalo”), operates as a
        manufacturer of fiberglass powerboats and related products and services to
        a
        broad range of consumers worldwide.
 
 The
        consolidated financial statements included herein may not necessarily be
        indicative of the future results of operations, financial position and cash
        flows of Marine Products.
 
 The
        Company has only one reportable segment — its Powerboat Manufacturing business.
        The Company’s results of operations and its financial condition are not
        significantly reliant upon any single customer or product model. Net sales
        from
        the Company’s international operations were approximately $47,000,000 in 2006,
        $43,000,000 in 2005 and $27,500,000 in 2004.
 
 *Nature
        of Operations* —
Marine
        Products is principally engaged in manufacturing powerboats and providing
        related products and services. Marine Products distributes fiberglass
        recreational boats through a network of domestic and international independent
        dealers.
 
 *Common
        Stock* —
Marine
        Products is authorized to issue 74,000,000 shares of common stock, $0.10
        par
        value. Holders of common stock are entitled to receive dividends when, as,
        and
        if declared by our Board of Directors out of legally available funds. Each
        share
        of common stock is entitled to one vote on all matters submitted to a vote
        of
        stockholders. Holders of common stock do not have cumulative voting rights.
        In
        the event of any liquidation, dissolution or winding up of the Company, holders
        of common stock are entitled to ratable distribution of the remaining assets
        available for distribution to stockholders.
 
 *Preferred
        Stock* — ** Marine
        Products is authorized to issue up to 1,000,000 shares of preferred stock,
        $0.10
        par value. As of December 31, 2006, there were no shares of preferred stock
        issued. The Board of Directors is authorized, subject to any limitations
        prescribed by law, to provide for the issuance of preferred stock as a class
        without series or, if so determined from time to time, in one or more series,
        and by filing a certificate pursuant to the applicable laws of the state
        of
        Delaware and to fix the designations, powers, preferences and rights,
        exchangeability for shares of any other class or classes of stock. Any preferred
        stock to be issued could rank prior to the common stock with respect to dividend
        rights and rights on liquidation.
 
 *Share
        Repurchases* —
The
        Company records the cost of share repurchases in stockholders’ equity as a
        reduction to common stock to the extent of par value of the shares acquired
        and
        the remainder is allocated to capital in excess of par value.
 
 *Dividend* —
The
        Board of Directors, at their quarterly meeting on January 23, 2007, declared
        a
        quarterly dividend of $0.06 per common share payable March 12, 2007 to
        stockholders of record at the close of business on February 12,
        2007.
 
 *Use
        of Estimates in the Preparation of Financial Statements* —
The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States requires management to make estimates
        and assumptions that affect the reported amounts of assets and liabilities
        and
        disclosure of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of sales and expenses during the reporting
        period. Actual results could differ from those estimates. Significant estimates
        are used in the determination of sales incentives and discounts, warranty
        costs
        and income taxes.
 
 *Sales
        Recognition* —
Marine
        Products recognizes sales when a fully executed agreement exists, prices
        are
        established, products are delivered to the dealer in the case of domestic
        dealers and collectibility is reasonably assured. See “Deferred revenue” below
        for recognition of sales to international dealers.
 
 *Deferred
        Revenue* —
Marine
        Products requires payment from international dealers prior to delivery of
        products to these dealers. Amounts received from international dealers toward
        the purchase of boats are categorized as deferred revenue and recognized
        as
        sales when the products are shipped.
  34
  **Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 *Shipping
        and Handling Charges* —
The
        shipping and handling of the Company’s products to dealers is handled through a
        combination of third-party marine transporters and a company owned fleet
        of
        delivery trucks. Fees charged to customers for shipping and handling are
        included in net sales in the accompanying consolidated statements of income;
        the
        related costs incurred by the Company are included in cost of goods sold.
 
 *Advertising* —
        Advertising expenses are charged to expense during the period in which they
        are
        incurred. Expenses associated with product brochures and other inventoriable
        marketing materials are deferred and amortized over the related model year
        which
        approximates the consumption of these materials. As of December 31, 2006
        and
        2005, the Company had approximately $525,000 and $390,000 in prepaid expenses
        related to the unamortized product brochure costs. Advertising expenses totaled
        approximately $2,789,000 in 2006, $2,622,000 in 2005 and $2,520,000 in 2004.
 
 *Sales
        Incentives and Discounts* —
Sales
        incentives including dealer discounts and retail sales promotions are provided
        for and recorded as a reduction in sales for the period in which the related
        sales are recorded. The Company records these incentives at the later of
        the
        recognition of the related sales or the announcement of a promotional program.
 
 *Cash
        and Cash Equivalents* —
Highly
        liquid investments with original maturities of three months or less are
        considered to be cash equivalents.
 
 *Marketable
        Securities* —
Marine
        Products maintains investments held with several large, well-capitalized
        financial institutions. Marine Products’ investment policy does not allow
        investment in any securities rated less than “investment grade” by national
        rating services.
 
 Management
        determines the appropriate classification of debt securities at the time
        of
        purchase and re-evaluates such designations as of each balance sheet date.
        Debt
        securities are classified as available-for-sale because the Company does
        not
        have the intent to hold the securities to maturity. Available-for-sale
        securities are stated at their fair values, with the unrealized gains and
        losses, net of tax, reported as a separate component of stockholders’ equity.
        The cost of securities sold is based on the specific identification method.
        Realized gains and losses, declines in value judged to be other than temporary,
        interest and dividends on available-for-sale securities are included in interest
        income. Realized gains (losses) on marketable securities totaled $(36,000)
        in
        2006, $(52,000) in 2005 and $148,000 in 2004. Of the total gains (losses)
        realized, reclassification from other comprehensive income totaled approximately
        $(25,000) in 2006, $(38,000) in 2005 and $165,000 in 2004. The fair value
        and
        the unrealized gains (losses) of the available-for-sale securities are as
        follows:
  **December
                    31,**
                
                **2006**
                
                **2005****Type
                    of Securities**
                
                **Fair
                    Value**
                
                **Unrealized
                    Gain (Loss)**
                
                **Fair
                    Value**
                
                **Unrealized
                    Gain (Loss)**U.S.
                    Treasury Notes
                
                $
                —
                
                $
                —
                
                $
                1,630,000
                
                $
                (14,000
                )Federal
                    Agency Obligations
                
                
                471,000
                
                
                (2,000
                )
                
                1,081,000
                
                
                (15,000
                )Corporate
                    Backed Obligations
                
                
                2,349,000
                
                
                (18,000
                )
                
                1,654,000
                
                
                (24,000
                )Asset
                    Backed Securities
                
                
                1,547,000
                
                
                (15,000
                )
                
                1,797,000
                
                
                (39,000
                )Municipal
                    Obligations
                
                
                —
                
                
                —
                
                
                1,054,000
                
                
                —




Corporate
        backed obligations consist primarily of debentures and notes issued by other
        companies ranging in maturity from less than ninety days to five years. These
        securities are rated A1/P1 or higher for the short-term securities and BBB
        or
        higher for the long-term securities.
 
 Asset
        backed securities consist of a well diversified portfolio of securities backed
        by receivables such as auto loans, equipment loans and credit cards. These
        securities have a credit rating of A1/P1 or higher.
  35




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 Investments
        with remaining maturities of less than 12 months are considered to be current
        marketable securities. Investments with remaining maturities greater than
        12
        months are considered to be non-current marketable securities. The maturities
        of
        the Company’s non-current marketable securities are as follows: $0 in 2007,
        approximately $3,679,000 between 2008 and 2012, $0 between 2013 and 2017,
        $36,000 in 2018 and thereafter.
 
 *Accounts
        Receivable —* The
        majority of the Company’s accounts receivable are due from dealers located in
        markets throughout the Unites States. Most of Marine Products’ domestic
        shipments are made pursuant to “floor plan financing” programs in which Marine
        Products’ subsidiaries participate on behalf of their dealers with two major
        third-party financing institutions. Under these arrangements, a dealer
        establishes lines of credit with one or more of these third-party lenders
        for
        the purchase of boat inventory for sales to retail customers in their show
        room
        or during boat show exhibitions. When a dealer purchases and takes delivery
        of a
        boat pursuant to a floor plan financing arrangement, it draws against its
        line
        of credit and the lender pays the invoice cost of the boat directly to Marine
        Products within approximately 10 business days. The Company determines its
        allowance for doubtful accounts by considering a number of factors, including
        the length of time trade accounts receivable are past due, the Company’s
        previous loss history, the customer’s current ability to pay its obligation to
        the Company, and the condition of the general economy and the industry as
        a
        whole. The Company writes-off accounts receivable when they become
        uncollectible, and payments subsequently received on such receivables are
        credited to the allowance.
 
 *Inventories* —
        Inventories are stated at the lower of cost (determined on a first-in, first-out
        basis) or market value. Market value is determined based on replacement cost
        for
        raw materials and net realizable value for work in process and finished goods.
 
 *Property,
        Plant and Equipment* —
        Property, plant and equipment is carried at cost. Depreciation is provided
        principally on a straight-line basis over the estimated useful lives of the
        assets. The cost of assets retired or otherwise disposed of and the related
        accumulated depreciation are eliminated from the accounts in the year of
        disposal with the resulting gain or loss credited or charged to income.
        Expenditures for additions, major renewals, and betterments are capitalized
        while expenditures for routine maintenance and repairs are expensed as incurred.
        Depreciation expense on operating equipment used in production is included
        in
        cost of goods sold in the accompanying consolidated statements of income.
        All
        other depreciation is included in selling, general and administrative expenses
        in the accompanying consolidated statements of income. Property, plant and
        equipment are reviewed for impairment when indicators of impairment exist.
 
 *Goodwill
        and Other Intangibles* —
        Intangibles consist primarily of goodwill and trade names related to businesses
        acquired. Goodwill represents the excess of the purchase price over the fair
        value of net assets of businesses acquired. The carrying amount of goodwill
        was
        $3,308,000 as of December 31, 2006 and 2005. Pursuant to the adoption of
        Statement of Financial Accounting Standards (“SFAS”) No. 142 beginning on
        January 1, 2002, goodwill is no longer amortized to earnings but instead
        is
        subject to an annual test for impairment. The Company completed an initial
        impairment analysis upon adoption of SFAS No. 142 and subsequent analyses
        in
        each year. Based upon the results of these analyses, the Company has concluded
        that no impairment of its goodwill has occurred.
 
 *Investments* —
The
        Company maintains certain securities in the non-qualified Supplemental Executive
        Retirement Plan that have been classified as trading. See Note 10 for
        further information regarding these securities.
 
 *Warranty
        Costs* —
The
        Company warrants the entire boat, excluding the engine, against defects in
        materials and workmanship for a period of one year. The Company also warrants
        the entire deck and hull, including its bulkhead and supporting stringer
        system,
        against defects in materials and workmanship for periods extending up to
        10
        years. The Company accrues for estimated future warranty costs at the time
        of
        the sale based on its historical claims experience. An analysis of the warranty
        accruals for the years ended December 31, 2006 and 2005 is as
        follows:
  **(in
                    thousands)**
                
                **2006**
                
                **2005**Balance
                    at beginning of year
                
                $
                4,272
                
                $
                3,796Less:
                    Payments made during the year
                
                
                (5,649
                )
                
                (4,453
                )Add:
                    Warranty provision for the current year
                
                
                4,729
                
                
                4,435Changes
                    to warranty provision for prior years
                
                
                1,985
                
                
                494Balance
                    at end of year
                
                $
                5,337
                
                $
                4,272




36




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 Changes
        to the warranty provision for prior years are the result of updated information
        about the frequency and size of claims incurred related to prior period sales,
        including changes in labor rates and component costs.
 
 *Insurance
        Accruals* —
The
        Company fully insures its risks related to general liability, product liability,
        workers’ compensation, and vehicle liability, whereas the health insurance plan
        is self-funded up to a maximum annual claim amount for each covered employee
        and
        related dependents. The estimated cost of claims under the self-insurance
        program is accrued as the claims are incurred and may subsequently be revised
        based on developments relating to such claims.
 
 *Research
        and Development Costs* —
The
        Company expenses research and development costs for new products and components
        as incurred. Research and development costs are included in selling, general
        and
        administrative expenses and totaled $1,439,000 in 2006, $1,933,000 in 2005
        and
        $1,729,000 in 2004.
 
 *Income
        Taxes* —
        Deferred tax liabilities and assets are determined based on the difference
        between the financial and tax bases of assets and liabilities using enacted
        tax
        rates in effect for the year in which the differences are expected to reverse.
        The Company establishes a valuation allowance against the carrying value
        of
        deferred tax assets if the Company concludes that it is more likely than
        not
        that the asset will not be realized through future taxable income.
 
 *Earnings
        per Share* —
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. A reconciliation of weighted average
        shares outstanding is as follows:
  **2006**
                
                **2005**
                
                **2004**Basic
                
                
                37,338,724
                
                
                38,015,899
                
                
                38,452,704Dilutive
                    effect of stock options and restricted shares
                
                
                1,639,582
                
                
                2,101,028
                
                
                2,318,547Diluted
                
                
                38,978,306
                
                
                40,116,927
                
                
                40,771,251




*Fair
        Value of Financial Instruments* —
The
        Company’s financial instruments consist primarily of cash and cash equivalents,
        accounts receivable, accounts payable and marketable securities. The carrying
        value of cash, accounts receivable and accounts payable approximate their
        fair
        values because of the short-term nature of such instruments. The Company’s
        marketable securities are classified as available-for-sale securities with
        the
        exception of securities held in the non-qualified Supplemental Retirement
        Plan
        (“SERP”) which are classified as trading securities. All of the securities are
        carried at fair value in the accompanying consolidated balance sheets. The
        fair
        value of these securities is based upon quoted market prices.
 
 *Concentration
        of Suppliers* —
The
        Company purchases a significant number of its sterndrive engines from only
        two
        available suppliers. This concentration of suppliers could impact our sales
        and
        profitability in the event of a sudden interruption in the delivery of these
        engines.
 
 *New
        Accounting Standards —* In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
        155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB
        Statements No. 133 and 140,” to permit fair value re-measurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation in accordance with the provisions of SFAS 133, “Accounting
        for Derivative Instruments and Hedging Activities.” The Company will adopt SFAS
        155 in fiscal year 2007. The adoption of this Statement is not expected to
        have
        a material effect on the Company’s
        consolidated results of operations and financial condition .
  37


**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets—an amendment of FASB Statement No. 140,” that provides guidance on
      accounting for separately recognized servicing assets and servicing liabilities.
      In accordance with the provisions of SFAS 156, separately recognized servicing
      assets and servicing liabilities must be initially measured at fair value,
      if
      practicable. Subsequent to initial recognition, the Company may use either
      the
      amortization method or the fair value measurement method to account for
      servicing assets and servicing liabilities within the scope of this Statement.
      The Company will adopt SFAS 156 in fiscal year 2007. The adoption of this
      Statement is not expected to have a material effect on the Company’s
      consolidated results of operations and financial condition .





In
      June
      2006, the FASB issued Financial Interpretation No. ("FIN") 48, “Accounting for
      Uncertainty in Income Taxes - an interpretation of FASB Statement 109.” FIN 48
      prescribes a recognition threshold and a measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in a tax return. This interpretation also provides guidance on
      de-recognition, classification, interest and penalties accounting in interim
      periods, disclosure and transition. This interpretation is effective for fiscal
      years beginning after December 15, 2006. The Company is currently evaluating
      the
      impact of applying the provisions of FIN 48.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” that
      provides guidance for using fair value to measure assets and liabilities. Under
      SFAS 157, fair value refers to the price that would be received to sell an
      asset
      or paid to transfer a liability in an orderly transaction between market
      participants in the market in which the reporting entity transacts. SFAS 157
      establishes a fair value hierarchy that prioritizes the information used to
      develop the assumptions that market participants would use when pricing the
      asset or liability. The fair value hierarchy gives the highest priority to
      quoted prices in active markets and the lowest priority to unobservable data.
      In
      addition, SFAS 157 requires that fair value measurements be separately disclosed
      by level within the fair value hierarchy. This standard will be effective for
      financial statements issued for fiscal periods beginning after November 15,
      2007
      and interim periods within those fiscal years. The Company is currently
      evaluating the impact of applying the various provisions of SFAS
      157.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements
      No. 87, 88, 106, and 132(R).” This
      Statement improves financial reporting by requiring an employer to recognize
      the
      over-funded or under-funded status of a defined benefit pension plan (other
      than
      a multiemployer plan) as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income. This Statement requires the Company
      to measure the funded status of a plan as of the date of its year-end statement
      of financial position, with limited exceptions. The requirement to recognize
      the
      funded status of a benefit plan and the disclosure requirements are effective
      as
      of the fiscal year ending after December 15, 2006. The requirement to measure
      plan assets and benefit obligations as of the date of the employer’s fiscal
      year-end statement of financial position is effective for fiscal years ending
      after December 15, 2008. The
      Company has adopted the recognition provisions of SFAS 158 as of December 31,
      2006. See Note 10 to the consolidated financial statements for details. The
      Company currently measures the plan assets and benefit obligations as of its
      fiscal year-end and therefore adoption of the measurement provisions will not
      have a significant impact on its consolidated results of operation and financial
      condition.





In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin (“SAB”) 108, “Considering the Effects of Prior Year
      Misstatements when Quantifying Misstatements in Current Year Financial
      Statements” (“SAB 108”). SAB 108 provides interpretive guidance on how the
      effects of the carryover or reversal of prior year misstatements should be
      considered in quantifying a current year misstatement. The SEC staff believes
      that registrants should quantify errors using both a balance sheet and an income
      statement approach and evaluate whether either approach results in quantifying
      a
      misstatement that, when all relevant quantitative and qualitative factors are
      considered, is material. The guidance in SAB 108 must be applied to annual
      financial statements for fiscal years ending after November 15, 2006. The
      adoption of SAB 108 did not have a material effect on the Company’s
      consolidated results of operations and financial condition .





In
      September 2006, the Financial Accounting Standards Board ratified a consensus
      opinion reached by the Emerging Issues Task Force (“EITF”) on EITF Issue 06-5,
“Accounting for Purchases of Life Insurance - Determining the Amount That Could
      Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” The guidance
      in EITF 06-5 requires policyholders to consider other amounts included in the
      contractual terms of an insurance policy, in addition to cash surrender value,
      for purposes of determining the amount that could be realized under the terms
      of
      the insurance contract. If it is probable that contractual terms would limit
      the
      amount that could be realized under the insurance contract, those contractual
      limitations should be considered when determining the realizable amounts. The
      amount that could be realized under the insurance contract should be determined
      on an individual policy (or certificate) level and should include any amount
      realized on the assumed surrender of the last individual policy or certificate
      in a group policy. The consensus in EITF Issue 06-5 is effective for fiscal
      years beginning after December 15, 2006. The Company
      intends to adopt EITF Issue 06-5 effective January 1, 2007, and does not believe
      that the adoption will have a significant effect on its financial
      statements.




38




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**




*Stock-Based
      Compensation* — Effective
      January 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised
      2004), “Share-Based Payment” (“SFAS 123(R)”), which revises SFAS 123,
“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires
      all share-based payments to employees, including grants of employee stock
      options, to be measured based on their fair values and recognized in the
      financial statements over the requisite service period. See Note 10 regarding
      the Company’s adoption of SFAS 123(R).





Prior
      to
      January 1, 2006, the Company provided the disclosures required by SFAS 123,
      as
      amended by SFAS 148, “Accounting for Stock-Based Compensation - Transition and
      Disclosures”, and accounted for all of its stock-based compensation under the
      provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
      for Stock Issued to Employees” using the intrinsic value method prescribed
      therein. Accordingly, the Company did not recognize compensation expense for
      the
      options granted since the exercise price was the same as the market price of
      the
      shares on the date of grant. Compensation cost on the restricted stock was
      recorded as deferred compensation in stockholders’ equity based on the fair
      market value of the shares on the date of issuance and amortized ratably over
      the respective vesting period. Forfeitures related to restricted stock were
      previously accounted for as they occurred. See Note 10 for additional
      information.





**NOTE
      2: ACCOUNTS RECEIVABLE**





Accounts
      receivable consist of the following:





**December
                31,**
            
            **2006**
            
            **2005****(in
                thousands)**Trade
                receivables
            
            $
            2,661
            
            $
            3,249Other
            
            
            371
            
            
            471Total
            
            
            3,032
            
            
            3,720Less:
                Allowance for doubtful accounts
            
            
            (52
            )
            
            (58
            )Net
                accounts receivable
            
            $
            2,980
            
            $
            3,662





Trade
      receivables consist primarily of balances related to the sales of boats which
      are shipped pursuant to “floor-plan financing” programs with qualified
      lenders. Other receivables consist primarily of amounts due from vendors for
      co-op advertising and rebates on engine purchases.





Changes
      in the Company’s allowance for doubtful accounts are disclosed in Schedule II on
      page 59 of this report.




**NOTE
      3: INVENTORIES**





Inventories
      consist of the following:




**December
                31,**
            
            **2006**
            
            **2005****(in
                thousands)**Raw
                materials
            
            $
            13,319
            
            $
            13,212Work
                in process
            
            
            9,383
            
            
            7,727Finished
                goods
            
            
            6,854
            
            
            5,917Total
                inventories
            
            $
            29,556
            
            $
            26,856





39


**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**




**NOTE
      4: PROPERTY, PLANT AND EQUIPMENT**





Property,
      plant and equipment are presented at cost, net of accumulated depreciation
      and
      consist of the following:





**December
                31,**
            
            **Estimated**
              **Useful
                Lives**
            
            **2006**
            
            **2005****(in
                thousands)**Land
            
            
            N/A
            
            $
            495
            
            $
            495Buildings
            
            
            20-39
            
            
            16,403
            
            
            16,120Operating
                equipment and property
            
            
            3-15
            
            
            8,861
            
            
            8,453Furniture
                and fixtures
            
            
            5-7
            
            
            1,594
            
            
            1,224Vehicles
            
            
            3-5
            
            
            6,048
            
            
            5,831Gross
                property, plant and equipment
            
            
            
            
            
            33,401
            
            
            32,123Less:
                accumulated depreciation
            
            
            
            
            
            (16,760
            )
            
            (14,871
            )Net
                property, plant and equipment
            
            
            
            
            $
            16,641
            
            $
            17,252





Depreciation
      expense was $2,130,000 in 2006, $2,245,000 in 2005 and $2,237,000 in 2004.




**NOTE
      5: RELATED PARTY TRANSACTIONS**





In
      conjunction with its spin-off from RPC, Inc. (“RPC”) in 2001, the Company and
      RPC entered into various agreements that define the companies’ relationship
      after the spin-off.





The
      Transition Support Services Agreement provides for RPC to provide certain
      services, including financial reporting and income tax administration,
      acquisition assistance, etc., to Marine Products until the agreement is
      terminated by either party. Marine Products reimbursed RPC for its estimated
      allocable share of administrative costs incurred for services rendered on behalf
      of Marine Products totaling $739,000 in 2006, $616,000 in 2005 and $546,000
      in
      2004. The Company’s liability to RPC for these services as of December 31, 2006
      and 2005 was approximately $236,000 and $66,000. The Company’s directors are
      also directors of RPC and all of the executive officers with the exception
      of
      one director are employees of both the Company and RPC.





The
      Employee Benefits Agreement provides for, among other things, the Company’s
      employees to continue participating subsequent to the spin-off in two RPC
      sponsored benefit plans, specifically, the defined contribution 401(k) plan
      and
      the defined benefit retirement income plan.





The
      Tax
      Sharing and Indemnification Agreement provides for, among other things, the
      treatment of income tax matters for periods through the date of the spin-off
      and
      responsibility for any adjustments as a result of audit by any taxing authority.
      The general terms provide for the indemnification for any tax detriment incurred
      by one party caused by the other party’s action. In accordance with the
      agreement, RPC transferred approximately $19,000 in 2004 to the Company related
      to tax settlements. Subsequent to the spin-off, Marine Products and RPC file
      separate tax returns.




40




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**




**NOTE
      6: ACCRUED EXPENSES AND OTHER LIABILITIES**





Accrued
      expenses and other liabilities consist of the following:





**December
                31,**
            
            **2006**
            
            **2005****(in
                thousands)**Accrued
                payroll and related expenses
            
            $
            1,926
            
            $
            2,185Accrued
                sales incentives and discounts
            
            
            3,624
            
            
            2,887Accrued
                warranty costs
            
            
            5,337
            
            
            4,272Deferred
                revenue
            
            
            1,944
            
            
            1,010Other
            
            
            803
            
            
            1,237Total
                accrued expenses and other liabilities
            
            $
            13,634
            
            $
            11,591




**NOTE
      7: INCOME TAXES**





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





**Years
                ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004****(in
                thousands)**Current
                provision:Federal
            
            $
            9,549
            
            $
            11,958
            
            $
            12,574State
            
            
            309
            
            
            683
            
            
            833Deferred
                (benefit) provision:Federal
            
            
            (778
            )
            
            (1,863
            )
            
            (678
            )State
            
            
            41
            
            
            (107
            )
            
            (106
            )Total
                income tax provision
            
            $
            9,121
            
            $
            10,671
            
            $
            12,623





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





**Years
                ended December 31,**
            
            **2006**
            
            **2005**
            
            **2004**Federal
                statutory rate
            
            
            35.0
            %
            
            35.0
            %
            
            35.0
            %State
                income taxes, net of federal benefit
            
            
            0.6
            
            
            0.8
            
            
            1.3Tax
                exempt interest
            
            
            (0.3
            )
            
            (1.0
            )
            
            (0.4
            )ETI
                benefit
            
            
            (0.5
            )
            
            (0.7
            )
            
            0.0Manufacturing
                deduction
            
            
            (1.0
            )
            
            (1.1
            )
            
            0.0Other
            
            
            (2.9
            )
            
            (4.1
            )
            
            (1.2
            )Effective
                tax rate
            
            
            30.9
            %
            
            28.9
            %
            
            34.7
            %




41




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**





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





**December
                31,**
            
            **2006**
            
            **2005****(in
                thousands)**Deferred
                tax assets:Warranty
                costs
            
            $
            1,922
            
            $
            1,580Sales
                incentives and discounts
            
            
            664
            
            
            700Stock-based
                compensation
            
            
            710
            
            
            538Pension
            
            
            1,633
            
            
            1,842All
                others
            
            
            684
            
            
            786Total
                deferred tax assets
            
            
            5,613
            
            
            5,446Deferred
                tax liabilities:Depreciation
                expense
            
            
            (920
            )
            
            (1,241
            )Net
                deferred tax assets
            
            $
            4,693
            
            $
            4,205





Total
      income tax payments, net of refunds, were $7,985,000 in 2006, $14,307,000 in
      2005 and $12,608,000 in 2004. The Company currently does not have a valuation
      allowance because it has determined that all of the deferred tax assets are
      more
      likely than not to 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.





42




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**




**NOTE
      8: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME**





Accumulated
      other comprehensive (loss) income consists of the following:




**Minimum**
                **Pension**
                **Liability**
              
              **Unrealized**
                **Gain
                  (Loss) on**
                **Securities**
              
              **Total****(in
                  thousands)**Balance
                  at December 31, 2004
              
              $
              (853
              )
              $
              (51
              )
              $
              (904
              )Change
                  during 2005:Before-tax
                  amount
              
              
              (324
              )
              
              (63
              )
              
              (387
              )Tax
                  benefit
              
              
              146
              
              
              23
              
              
              169Reclassification
                  adjustment, net of taxes
              
              
              —
              
              
              24
              
              
              24Total
                  activity in 2005
              
              
              (178
              )
              
              (16
              )
              
              (194
              )Balance
                  at December 31, 2005
              
              $
              (1,031
              )
              $
              (67
              )
              $
              (1,098
              )Change
                  during 2006:Before-tax
                  amount
              
              
              572
              
              
              56
              
              
              628Tax
                  provision
              
              
              (228
              )
              
              (36
              )
              
              (264
              )Reclassification
                  adjustment, net of taxes
              
              
              —
              
              
              16
              
              
              16Total
                  activity in 2006
              
              
              344
              
              
              36
              
              
              380Balance
                  at December 31, 2006
              
              $
              (687
              )
              $
              (31
              )
              $
              (718
              )




**NOTE
        9: COMMITMENTS AND CONTINGENCIES**
 
 *Lawsuits* —
The
        Company is a defendant in certain lawsuits which allege that plaintiffs have
        been damaged as a result of the use of the Company’s products. The Company is
        vigorously contesting these actions. Management, after consultation with
        legal
        counsel, is of the opinion that the outcome of these lawsuits will not have
        a
        material adverse effect on the financial position, results of operations
        or
        liquidity of Marine Products.
 
 *Dealer
        Floor-Plan Financing* —
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. The maximum contractual obligation
        and
        the amount outstanding under these agreements, which expire in 2007 was $3.5
        million as of December 31, 2006. The Company has recorded the estimated fair
        value of this guarantee; at December 31, 2006, this amount is immaterial
        and did
        not change from the prior year.
 
 *Lease
        Obligation* —
In
        June
        2001, the Company entered into a lease transaction for existing boat
        manufacturing space located in Valdosta, Georgia. The lease has a term of
        12
        years. This lease has been accounted for as a capital lease and accordingly,
        the
        building, land, and miscellaneous equipment have been recorded in property,
        plant and equipment on the consolidated balance sheet at a gross amount of
        $992,000 with accumulated depreciation of approximately $149,000. A liability
        equal to the estimated present value of the remaining lease obligation totaling
        $239,000 has been recorded and is included in other long-term liabilities
        on the
        consolidated balance sheet.
 
 *Income
        Taxes* — The
        amount of income taxes the Company pays is subject to ongoing audits by federal
        and state tax authorities, which often result in proposed assessments. Other
        long-term liabilities consist primarily of the Company’s estimated liabilities
        for these probable assessments and totaled approximately $780,000 as of December
        31, 2006 and $992,000 as of December 31, 2005.


43




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 *Employment
        Agreements* —
The
        Company has an agreement with two employees, which provides for a monthly
        payment to each of the employees equal to 10 percent of profits (defined
        as
        pretax income before goodwill adjustments and certain allocated corporate
        expenses) in addition to a base salary. The expense under these agreements
        totaled approximately $7,999,000 in 2006, $10,320,000 in 2005 and $9,997,000
        in
        2004 and is included in selling, general and administrative expenses in the
        accompanying consolidated statements of income.
  **NOTE
        10: EMPLOYEE BENEFIT PLANS**
 
 *Retirement
        Plan* —
Marine
        Products participates in the tax-qualified, defined benefit, noncontributory,
        trusteed retirement income plan sponsored by RPC that covers substantially
        all
        employees with at least one year of service prior to 2002. The Company’s Board
        of Directors approved a resolution to cease all future retirement benefit
        accruals under the Retirement Income Plan effective March 31, 2002. In lieu
        thereof, the Company began providing enhanced benefits in the form of cash
        contributions for certain longer serviced employees that had not reached
        the
        normal retirement age of 65 as of March 31, 2002. These discretionary
        contributions are expected to be made over a seven year period beginning
        in 2002
        to either a non-qualified SERP established by the Company or to the 401(k)
        plan
        for each employee that is entitled to the enhanced benefit. The expenses
        related
        to the enhanced benefits were $119,000 in 2006, $119,000 in 2005 and $122,000
        in
        2004.
 
 The
        Company permits selected highly compensated employees to defer a portion
        of
        their compensation into the SERP. The SERP assets are marked to market and
        as of
        December 31, 2006 and 2005 totaled approximately $4,353,000 and $3,686,000.
        The
        SERP assets are reported in other assets on the consolidated balance sheets
        and
        changes related to the fair value of the assets are included in selling,
        general
        and administrative expenses in the consolidated statements of income for
        2006
        and 2005. The SERP deferrals and the contributions are recorded on the balance
        sheet in pension liabilities with any change in the fair value of the SERP
        liabilities recorded as compensation cost in the statements of income.
 
 As
        previously mentioned, the Company has adopted the provisions of SFAS 158.
        In
        accordance with the provisions of SFAS 158, the fair value of the plan assets
        exceeded the Company’s projected benefit obligation under its pension plan by
        $121,000 and thus the plan was not under-funded as of December 31, 2006.
        Prior
        to the adoption of SFAS 158, the Company’s disclosure of the funded status in
        the notes to the consolidated financial statements did not differ from the
        amount recognized in the consolidated balance sheets; therefore, the adoption
        of
        SFAS 158 did not have an affect on the balance sheet. The adoption of SFAS
        158 had the following effect on the Company’s consolidated balance sheet as of
        December 31, 2006:
  **As
                    of December 31, 2006*****(in
                    thousands)***
                
                **Prior
                    to adoption of SFAS 158**
                
                **Effect
                    of adopting SFAS 158**
                
                **Adjusted**Asset
                    for pension benefits
                
                $
                121
                
                $
                —
                
                $
                121Deferred
                    income taxes
                
                $
                378
                
                $
                —
                
                $
                378Accumulated
                    other comprehensive income
                
                $
                1,065
                
                $
                —
                
                $
                1,065




44




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 The
        following table sets forth the funded status of the Retirement Income Plan
        and
        the amounts recognized in Marine Products’ consolidated balance sheets
        subsequent to the adoption of SFAS 158:
  **December
                    31,**
                
                **2006**
                
                **2005*****(in
                    thousands)***ACCUMULATED
                    BENEFIT OBLIGATION, END OF YEAR
                
                $
                4,699
                
                $
                4,917CHANGE
                    IN PROJECTED BENEFIT OBLIGATION:Benefit
                    obligation at beginning of year
                
                $
                4,917
                
                $
                4,403Service
                    cost
                
                
                —
                
                
                —Interest
                    cost
                
                
                246
                
                
                251Actuarial
                    (gain) loss
                
                
                (401
                )
                
                336Benefits
                    paid
                
                
                (63
                )
                
                (73
                )Projected
                    benefit obligation at end of year
                
                $
                4,699
                
                $
                4,917CHANGE
                    IN PLAN ASSETS:Fair
                    value of plan assets at beginning of year
                
                $
                3,780
                
                $
                3,378Actual
                    return on plan assets
                
                
                403
                
                
                175Employer
                    contributions
                
                
                700
                
                
                300Benefits
                    paid
                
                
                (63
                )
                
                (73
                )Fair
                    value of plan assets at end of year
                
                $
                4,820
                
                $
                3,780Funded
                    status at end of year
                
                $
                121
                
                $
                (1,137
                )Unrecognized
                    net loss
                
                
                
                
                
                1,637Net
                    prepaid benefit cost
                
                
                
                
                $
                500




**December
                  31,**
              
              **2006*****(in
                  thousands)***AMOUNTS
                  RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:Noncurrent
                  assets
              
              $
              121Current
                  liabilities
              
              
              —Noncurrent
                  liabilities
              
              
              —$
              121




The
        amount shown above has been recorded as part of other assets.
  **December
                    31,**
                
                **2006*****(in
                    thousands)***AMOUNTS
                    RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST
                    OF:Net
                    actuarial loss (gain)
                
                $
                1,065Prior
                    service cost (credit)
                
                
                —Net
                    transition obligation (asset)
                
                
                —$
                1,065




The
        accumulated benefit obligation for the defined benefit pension plan at December
        31, 2006 and 2005 has been disclosed above. The Company uses a December 31
        measurement date for this qualified plan.
  45




**Notes
        to Consolidated Financial Statements**
 **Marine
        Products Corporation and Subsidiaries**
 **Years
        ended December 31, 2006, 2005 and 2004**
 
 Amounts
        recognized in the consolidated balance sheet and reflected as pension
        liabilities consist of:
  **December
                    31,**
                
                **2006**
                
                **2005*****(in
                    thousands)***Net
                    prepaid benefit cost
                
                $
                —
                
                $
                (500
                )Minimum
                    pension liability
                
                
                —
                
                
                1,637SERP
                    employer contributions
                
                
                344
                
                
                275SERP
                    employee deferrals
                
                
                4,326
                
                
                3,511Net
                    amount recognized
                
                $
                4,670
                
                $
                4,923




Marine
        Products’ funding policy is to contribute to the retirement income plan the
        amount required, if any, under the Employee Retirement Income Security Act
        of
        1974. Marine Products contributed $700,000 in 2006 and $300,000 in
        2005.
 
 The
        components of net periodic benefit cost are summarized as follows:
  **Years
                    ended December 31,**
                
                **2006**
                
                **2005**
                
                **2004*****(in
                    thousands)***Service
                    cost for benefits earned during the period
                
                $
                —
                
                $
                —
                
                $
                —Interest
                    cost on projected benefit obligation
                
                
                246
                
                
                251
                
                
                240Expected
                    return on plan assets
                
                
                (341
                )
                
                (285
                )
                
                (231
                )Amortization
                    of net (gain) loss
                
                
                108
                
                
                122
                
                
                86Net
                    periodic benefit cost
                
                $
                13
                
                $
                88
                
                $
                95




The
        Company recorded pre-tax minimum pension liability adjustments of $(572,000)
        in
        2006 and $324,000 in 2005. There were no previously unrecognized prior service
        costs as of December 31, 2006 and 2005.
  The
        pre-tax amounts recognized in other comprehensive income at December 31,
        2006
        are summarized as follows:
  ***(in
                    thousands)***
                
                **2006**Net
                    loss (gain)
                
                $
                (464
                )Amortization
                    of net (loss) gain
                
                
                (108
                )Net
                    transition obligation (asset)
                
                
                —Amount
                    recognized in other comprehensive income
                
                $
                (572
                )




The
        amounts in accumulated other comprehensive income expected to be recognized
        as
        components of net periodic benefit cost in 2007 are as follows:
  ***(in
                    thousands)***
                
                **2006**Amortization
                    of net loss (gain)
                
                $
                95Prior
                    service cost (credit)
                
                
                —Net
                    transition obligation (asset)
                
                
                —Estimated
                    net periodic cost
                
                $
                95




46


**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**





The
      weighted average assumptions as of December 31 used to determine the projected
      benefit obligation and net benefit cost were as follows:





**December
                31,**
            
            **2006**
            
            **2005**
            
            **2004**PROJECTED
                BENEFIT OBLIGATION:Discount
                rate
            
            
            5.500
            %
            
            5.500
            %
            
            5.750
            %Rate
                of compensation increase
            
            
            N/A
            
            
            N/A
            
            
            N/ANET
                BENEFIT COST:Discount
                rate
            
            
            5.500
            %
            
            5.750
            %
            
            6.250
            %Expected
                return on plan assets
            
            
            8.000
            %
            
            8.000
            %
            
            8.000
            %Rate
                of compensation increase
            
            
            N/A
            
            
            N/A
            
            
            N/A





The
      Company’s expected return on assets assumption is derived from a detailed
      periodic assessment by its management and investment advisor. It includes a
      review of anticipated future long-term performance of individual asset classes
      and consideration of the appropriate asset allocation strategy given the
      anticipated requirements of the plan to determine the average rate of earnings
      expected on the funds invested to provide for the pension plan benefits. While
      the assessment gives appropriate consideration to recent fund performance and
      historical returns, the rate of return assumption is derived primarily from
      a
      long-term, prospective view. Based on its recent assessment, the Company has
      concluded that its expected long-term return assumption of eight percent is
      reasonable.





At
      December 31, 2006 and 2005, the Plan’s assets were comprised primarily of listed
      common stocks and U.S. Government and corporate securities. The plan’s weighted
      average asset allocation at December 31, 2006 and 2005 by asset category along
      with the target allocation for 2007 are as follows:





**Asset
                Category**
            
            **Target**
              **Allocation**
              **for
                2007**
            
            **Percentage
                of**
              **Plan
                Assets as of**
              **December
                31,**
              **2006**
            
            **Percentage
                of**
              **Plan
                Assets as of**
              **December
                31,**
              **2005**Equity
                Securities
            
            
            48.1
            %
            
            49.6
            %
            
            48.3
            %Debt
                Securities — Core Fixed Income
            
            
            28.3
            
            
            28.6
            
            
            28.7Tactical
                — Fund of Equity and Debt Securities
            
            
            5.4
            
            
            5.4
            
            
            2.6Real
                Estate
            
            
            5.4
            
            
            5.5
            
            
            5.4Other
            
            
            12.8
            
            
            10.9
            
            
            15.0Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %





The
      Company’s investment strategy for its pension plan is to maximize the long-term
      rate of return on plan assets within an acceptable level of risk in order to
      minimize the cost of providing pension benefits in accordance with this plan.
      The investment policy establishes a target allocation for each asset class,
      which is rebalanced as required. The Company utilizes a number of investment
      approaches, including individual marketable securities, equity and fixed income
      funds in which the underlying securities are marketable, and debt funds to
      achieve this target allocation. The Company expects to contribute approximately
      $250,000 to the pension plan in 2007 and does not expect to receive a refund
      in
      2007.





The
      Company estimates that the future benefits payable for the defined benefit
      plan
      over the next ten years are as follows:




***(in
                thousands)***2007
            
            $
            852008
            
            
            1962009
            
            
            2092010
            
            
            2142011
            
            
            2282012-2016
            
            
            1,281





47




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**





*401(k)
      Plan* —
Marine
      Products participates in a defined contribution 401(k) plan sponsored by RPC
      that is available to substantially all full-time employees with more than 90
      days of service. This plan allows employees to make tax-deferred contributions
      of up to 25 percent of their annual compensation, not exceeding the permissible
      deduction imposed by the Internal Revenue Code. The Company matches 50 percent
      of each employee’s contributions that do not exceed six percent of the
      employee’s compensation, as defined by the 401(k) plan. Employees vest in the
      Company’s contributions after three years of service. The charges to expense for
      Marine Products’ contributions to the 401(k) plan were approximately $176,000 in
      2006, $149,000 in 2005 and $149,000 in 2004.





*Stock
      Incentive Plan* —
The
      Company has granted various awards to employees under two stock incentive plans
      (the “Plans”) that were approved by the shareholders in 2001 and 2004. The
      Company reserved a total of 5,250,000 shares of common stock under
      both Plans, each of which expires 10 years from approval. The Plans provide
      for the issuance of various forms of stock incentives, including, among others,
      incentive and non-qualified stock options and restricted stock. As of December
      31, 2006, shares totaling 2,093,628 were available for grants.





As
      previously noted, the Company adopted the provisions of SFAS 123(R),
“Share-Based Payment,” effective January 1, 2006. As permitted by SFAS 123(R),
      the Company has elected to use the modified prospective transition method and
      therefore financial results for prior periods have not been restated. Under
      this
      transition method, we will apply the provisions of SFAS123(R) to new awards
      and
      the awards modified, repurchased, or cancelled after January 1, 2006.
      Additionally, the Company will recognize compensation expense for the unvested
      portion of awards outstanding over the remainder of the service period. The
      compensation cost recorded for these awards will be based on their fair value
      at
      grant date as calculated for the pro forma disclosures required by Statement
      123
      less the cost of estimated forfeitures. SFAS 123(R) requires forfeitures to
      be
      estimated at the time of grant and revised, if necessary, in subsequent periods
      to reflect actual forfeitures. SFAS 123(R) also requires that cash flows related
      to share-based awards to employees that result in tax benefits in excess of
      recognized cumulative compensation cost (excess tax benefits) be classified
      as
      financing cash flows.





Pre-tax
      stock-based employee compensation expense was approximately $1,514,000
      ($1,129,000 after tax) for 2006, $750,000 ($506,000 after tax) for 2005 and
      $255,000 ($191,000 after tax) for 2004. As a result of the adoption of SFAS
      123(R), financial results were lower than under the previous accounting method
      for share-based compensation by the following amounts:





***(In
                thousands)***
            
            **Year
                  Ended**
                **December
                  31, 2006**Income
                before income taxes
            
            **$**
            **517**Net
                income
            
            **$**
            **487**Basic
                earnings per common share
            
            **$**
            **0.01**Diluted
                earnings per common share
            
            **$**
            **0.01**





As
      a
      result of the adoption of SFAS 123(R), basic earnings per share decreased from
      $0.55 to $0.54 and diluted earnings per share decreased from $0.53 to $0.52
      for
      the year ended December 31, 2006.





48




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**








The
      following table illustrates the effect on net income and net income per common
      share as if the Company had applied the fair value recognition provisions of
      SFAS 123(R) to stock-based compensation for the years ended December 31, 2005
      and 2004:





**Years
                ended December 31,**
            
            **2005**
            
            **2004*****(in
                thousands)***Net
                income — as reported
            
            $
            26,223
            
            $
            23,743Add:
                Stock-based employee compensation expense included in reported net
                income,
                net of related tax effect
            
            
            506
            
            
            191Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effect
            
            
            (1,055
            )
            
            (550
            )Pro
                forma net income
            
            $
            25,674
            
            $
            23,384Pro
                forma income per share would have been as follows:Basic
                - as reported
            
            $
            0.69
            
            $
            0.62Basic
                - pro forma
            
            $
            0.68
            
            $
            0.61Diluted
                - as reported
            
            $
            0.65
            
            $
            0.58Diluted
                - pro forma
            
            $
            0.64
            
            $
            0.57


Stock Options —
Stock
      options are granted at an exercise price equal to the fair market value of
      the
      Company’s common stock at the date of grant except for grants of incentive stock
      options to owners of greater than 10 percent of the Company’s voting securities
      which must be made at 110 percent of the fair market value of the Company’s
      common stock. Options generally vest ratably over a period of five years and
      expire in 10 years, except to owners of greater than 10 percent of the Company’s
      voting securities, which expire in five years.


As
        prescribed by SFAS 123(R), the Company estimates the fair value of stock
        options
        as of the date of grant using the Black-Scholes option pricing model. For
        options granted during 2004, the latest year for which the Company granted
        stock
        options, the weighted average assumptions used in the Black-Scholes option
        pricing model were as follows:
  **2006**
              
              **2005**
              
              **2004**Risk
                  free interest rate
              
              
              N/A
              
              
              N/A
              
              
              3.5
              %Expected
                  dividend yield
              
              
              N/A
              
              
              N/A
              
              
              0.9
              %Expected
                  lives
              
              
              N/A
              
              
              N/A
              
              
              7
                  yearsExpected
                  volatility
              
              
              N/A
              
              
              N/A
              
              
              47-52
              %
  The
          total
          fair value of options granted to Marine Products employees was $422,000
          in
          2004.





49




**Notes
      to Consolidated Financial Statements**


**Marine
      Products Corporation and Subsidiaries**


**Years
      ended December 31, 2006, 2005 and 2004**





Transactions
      involving the Marine Products stock options for the year ended December 31,
      2006
      were as follows:





**Shares**
            
            **Weighted
                Average**
              **Exercise
                Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                Life**
            
            **Aggregate
                Intrinsic Value**Outstanding
                at January 1, 2006
            
            
            2,272,313
            
            
            2.67
            
            
            4.7
                yearsGranted
            
            
            **—**
            
            
            **—**
            
            
            N/AExercised
            
            
            (308,773
            )
            
            1.56
            
            
            N/AForfeited
            
            
            (12,000
            )
            
            7.55
            
            
            N/AExpired
            
            
            **—**
            
            
            **—**
            
            
            N/AOutstanding
                at December 31, 2006
            
            
            1,951,540
            
            
            2.82
            
            
            3.9
                years
            
            $
            17,407,737Exercisable
                at December 31, 2006
            
            
            1,435,392
            
            
            2.36
            
            
            3.3
                years
            
            $
            13,463,977





The
      Company has not granted stock options to employees since 2004. The weighted
      average grant date fair value of the options granted in 2004 was $6.18. The
      total intrinsic value of share options exercised was approximately $2,813,000
      during 2006, $3,286,000 during 2005 and $5,625,000 during 2004. There were
      no
      tax benefits associated with the exercise of stock options during 2006, 2005
      or
      2004, because all of the options exercised were incentive stock options which
      do
      not generate tax deductions for the Company





Restricted
      Stock— Marine Products has granted employees two forms of restricted stock;
      time lapse restricted and performance restricted. Time lapse restricted shares
      vest after a certain stipulated number of years from the grant date, depending
      on the terms of the issue. The Company has issued time lapse restricted shares
      that vest over ten years in prior years and in 2006 and 2005 issued time lapse
      restricted shares that vest in 20 percent increments starting with the second
      anniversary of the grant, over the six year period beginning on the date of
      grant. During these years, grantees receive all dividends declared and retain
      voting rights for the shares. The performance restricted shares are granted,
      but
      not earned and issued, until certain five-year tiered performance criteria
      are
      met. The performance criteria are predetermined market prices of Marine
      Products’ common stock. On the date the common stock appreciates to each level
      (determination date), 20 percent of performance shares are earned. Once earned,
      the performance shares vest five years from the determination date. After the
      determination date, the grantee will receive all dividends declared and also
      voting rights to the shares.




The
      agreements under which the restricted stock is issued provide that shares
      awarded may not be sold or otherwise transferred until restrictions established
      under the stock plans have lapsed. Upon termination of employment from the
      Company, shares with restrictions must be returned to the Company.








The
      following is a summary of the changes in non-vested restricted shares for the
      year ended December 31, 2006:





**Shares**
            
            **Weighted
                Average**
              **Grant-Date
                Fair Value**Non-vested
                shares at January 1, 2006
            
            
            562,574
            
            $
            8.79Granted
            
            
            153,000
            
            
            11.24Vested
            
            
            (94,870
            )
            
            5.07Forfeited
            
            
            (29,870
            )
            
            13.42Non-vested
                shares at December 31, 2006
            
            
            590,954
            
            $
            9.79





The
      total
      fair value of shares vested was approximately $1,267,000 during 2006, $0 during
      2005 and $2,876,000 during 2004. The tax benefit for compensation tax deductions
      in excess of compensation expense was credited to capital in excess of par
      value
      aggregating $296,000 in 2006, $0 in 2005 and $874,000 in 2004. The excess tax
      deductions during the year ended December 31, 2006 are classified as financing
      cash flows in accordance with SFAS 123(R).





*Other
      Information* —As
      of
      December 31, 2006 total unrecognized compensation cost related to non-vested
      restricted shares was approximately $4,264,000 which is expected to be
      recognized over a weighted-average period of 3.1 years. Unearned compensation
      cost associated with non-vested restricted shares of $3,540,000 previously
      reflected as deferred compensation in stockholders’ equity at January 1, 2006
      was reclassified to capital in excess of par value as required by SFAS 123(R).
      As of December 31, 2006, total unrecognized compensation cost related to
      non-vested stock options was approximately $488,000 which is expected to be
      recognized over a weighted-average period of 1.2 years.





50


The
      Company received cash from options exercised of $178,000 in 2006, $344,000
      in
      2005 and $768,000 in 2004. These cash receipts are classified as financing
      cash
      flows in the accompanying consolidated statements of cash flows. The fair value
      of shares tendered to exercise employee stock options totaled approximately
      $295,000 in 2006, $262,000 in 2005 and $168,000 in 2004 have been excluded
      from
      the consolidated statements of cash flows.




51


**Item
      9. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None.





**Item
      9A. 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, December 31, 2006 (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 the reasonable assurance
      level as of the Evaluation Date.





*Management’s
      report on internal control over financial reporting* —
      Management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15(f) and 15d-15(f). Management’s report on internal control over financial
      reporting is included on page 27 of this report. Grant Thornton LLP, the
      Company’s independent registered public accounting firm, has audited
      management’s assessment of the effectiveness of internal control as of December
      31, 2006 and issued a report thereon which is included on page 28 of this
      report.





*Changes
      in internal control over financial reporting* —
There
      were no changes in the Company’s internal control over financial reporting that
      occurred during the Company’s most recently completed fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting.





**Item
      9B. Other Information**





None.





52


**PART
      III**





**Item
      10. Directors, Executive Officers and Corporate Governance**





Information
      concerning directors and executive officers will be included in the Marine
      Products Proxy Statement for its 2007 Annual Meeting of Stockholders, in the
      section titled “Election of Directors.” This information is incorporated herein
      by reference. Information about executive officers is contained on page 14
      of
      this document.





***Audit
      Committee and Audit Committee Financial Expert***





Information
      concerning the Audit Committee of the Company and the Audit Committee Financial
      Expert(s) will be included in the Marine Products Proxy Statement for its 2007
      Annual Meeting of Stockholders, in the section titled “Corporate Governance and
      Board of Directors, Committees and Meetings - Audit Committee.” This information
      is incorporated herein by reference.





***Code
      of Ethics***





Marine
      Products has a Code of Business Conduct that applies to all employees. In
      addition, the Company has a Supplemental Code of Business Conduct and Ethics
      for
      directors, the Principal Executive Officer and Principal Financial and
      Accounting Officer. Both of these documents are available on the Company’s
      website at www.marineproductscorp.com .
      Copies
      are also available at no extra charge by writing to Attn.: Human Resources,
      Marine Products Corporation, 2801 Buford Highway, Suite 520, Atlanta, Georgia
      30329.





***Section
      16(a) Beneficial Ownership Reporting Compliance***





Information
      regarding compliance with Section 16(a) of the Exchange Act will be included
      under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
      Proxy Statement for its 2007 Annual Meeting of Stockholders, which is
      incorporated herein by reference.





**Item
      11. Executive Compensation**





Information
      concerning director and executive compensation will be included in the Marine
      Products Proxy Statement for its 2007 Annual Meeting of Stockholders, in the
      sections titled “Compensation Committee Interlocks and Insider Participation,”
“Director Compensation,” “Compensation Discussion and Analysis,” “Compensation
      Committee Report,” and “Executive Compensation.” This information is
      incorporated herein by reference.





**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





Information
      concerning security ownership will be included in the Marine Products Proxy
      Statement for its 2007 Annual Meeting of Stockholders, in the sections titled,
      “Capital Stock” and “Election of Directors.” This information is incorporated
      herein by reference.





Information
      regarding Marine Products’ equity compensation plans including plans approved by
      security holders and plans not approved by security holders will be included
      in
      the section titled, “Executive Compensation” in the Marine Products Proxy
      Statement for its 2007 Annual Meeting of Stockholders, which is incorporated
      herein by reference.




53




*Securities
      Authorized for Issuance Under Equity Compensation Plans*





The
      following table sets forth certain information regarding equity compensation
      plans as of December 31, 2006.





Plan
                Category
            
            **(A)**
              **Number
                of Securities To**
              **Be
                Issued Upon Exercise of**
              **Outstanding
                Options,**
              **Warrants
                and Rights**
            
            **(B)**
              **Weighted
                Average**
              **Exercise
                Price of**
              **Outstanding
                Options,**
              **Warrants
                and Rights**
            
            **(C)**
              **Number
                of Securities Remaining Available for Future Issuance
                Under**
              **Equity
                Compensation**
              **Plans
                (Excluding**
              **Securities
                Reflected in**
              **Column
                (A))**Equity
                compensation plans approved by securityholders
            
            
            1,951,540
            
            $
            2.82
            
            
            2,093,628
                (1
            )Equity
                compensation plans not approved by securityholders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            1,951,540
            
            $
            2.82
            
            
            2,093,628





(1)
            All
                of the securities can be issued in the form of restricted stock or
                other
                stock awards.





See
      Note
      10 to the Consolidated Financial Statements for information regarding the
      material terms of the equity compensation plans.





**Item
      13. Certain Relationships and Related Party Transactions, and Director
      Independence**





Information concerning certain relationships and related party transactions
      will
      be included in the Marine Products Proxy Statement for its 2007 Annual Meeting
      of Stockholders, in the section titled “Certain Relationships and Related Party
      Transactions.” Information regarding director independence will be included in
      the Marine Products Proxy Statement for its 2007 Annual Meeting of Stockholders
      in the section titled “Director Independence and NYSE Requirements.” This
      information is incorporated herein by reference.





**Item
      14. Principal Accounting Fees and Services**





Information
      regarding principal accountant fees and services will be included in the section
      titled, “Independent Registered Public Accountants” in the Marine Products Proxy
      Statement for its 2007 Annual Meeting of Stockholders. This information is
      incorporated herein by reference.




54





**PART
      IV**





**Item
      15. Exhibits and Financial Statement Schedules**





*Consolidated
      Financial Statements, Financial Statement Schedule and Exhibits.*





1.
            Consolidated
                financial statements listed in the accompanying Index to Consolidated
                Financial Statements and Schedule are filed as part of this report.





2.
            The
                financial statement schedule listed in the accompanying Index to
                Consolidated Financial Statements and Schedule is filed as part of
                this
                report.





3.
            Exhibits
                listed in the accompanying Index to Exhibits are filed as part of
                this
                report. The following such exhibits are management contracts or
                compensatory plans or arrangements:





10.1
            Marine
                Products Corporation 2001 Employee Stock Incentive Plan (incorporated
                herein by reference to Exhibit 10.1 to the Form 10 filed on February
                13,
                2001).





10.6
            Compensation
                Agreement between James A. Lane, Jr. and Chaparral Boats, Inc.
                (incorporated herein by reference to Exhibit 10.6 to the Form 10
                filed on
                February 13, 2001).





10.7
            Marine
                Products Corporation 2004 Stock Incentive Plan (incorporated herein
                by
                reference to Appendix B to the Definitive Proxy Statement filed on
                March
                24, 2004).





10.8
            Form
                of stock option grant agreement under the 2001 Employee Stock Incentive
                Plan (incorporated herein by reference to Exhibit 10.7 to the Form
                10-K
                filed on March 21, 2003).





10.9
            Form
                of time lapse restricted stock grant agreement under the 2001 Employee
                Stock Incentive Plan (incorporated herein by reference to Exhibit
                10.8 to
                the Form 10-K filed on March 21,
                2003).





10.10
            Form
                of performance restricted stock grant agreement under the 2001 Employee
                Stock Incentive Plan (incorporated herein by reference to Exhibit
                10.9 to
                the Form 10-K filed on March 21,
                2003).





10.11
            Form
                of stock option grant agreement under the 2004 Stock Incentive Plan
                (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q
                filed
                on November 1, 2004).





10.12
            Form
                of time lapse restricted stock grant agreement under the 2004 Stock
                Incentive Plan (incorporated herein by reference to Exhibit 10.8
                to the
                Form 10-Q filed on November 1,
                2004).





10.13
            Form
                of performance restricted stock grant agreement under the 2004 Stock
                Incentive Plan (incorporated herein by reference to Exhibit 10.9
                to the
                Form 10-Q filed on November 1,
                2004).





10.14
            Summary
                of ‘at will’ compensation arrangements with the Executive Officers as of
                February 28, 2006 (incorporated herein by reference to Exhibit 10.14
                to
                the Form 10-K filed on March 13, 2006).





10.15
            Summary
                of compensation arrangements with the Directors (incorporated herein
                by
                reference to Exhibit 10.15 to the Form 10-K filed on March 15,
                2005).





10.16
            Supplemental
                Retirement Plan (incorporated herein by reference to Exhibit 10.16
                to the
                Form 10-K filed on March 15, 2005).





10.17
            Summary
                of ‘At-Will’ compensation arrangements with the Executive Officers as of
                February 28, 2007.





10.18
            Summary
                of Compensation Arrangements with Non-Employee Directors as of February
                28, 2007.




55




10.19
            First
                Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
                Plan.





56








**Exhibits
      (inclusive of item 3 above):**





**Exhibit**
              **Number**
            **Description**3.1
            (A)
                Articles of Incorporation of Marine Products Corporation (incorporated
                herein by reference to Exhibit 3.1 to the Form 10 filed on February
                13, 2001).(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 current report on Form 8-K filed
                on June
                9, 2005).3.2
            Bylaws
                of Marine Products Corporation (incorporated herein by reference
                to
                Exhibit 3.2 to the Form 10-Q filed on May 5, 2004).4
            Form
                of Common Stock Certificate of Marine Products Corporation (incorporated
                herein by reference to Exhibit 4.1 to the Form 10 filed on February
                13,
                2001).10.1
            Marine
                Products Corporation 2001 Employee Stock Incentive Plan (incorporated
                herein by reference to Exhibit 10.1 to the Form 10 filed on February
                13,
                2001).10.2
            Agreement
                Regarding Distribution and Plan of Reorganization, dated February
                12,
                2001, by and between RPC, Inc. and Marine Products Corporation
                (incorporated herein by reference to Exhibit 10.2 to the Form 10
                filed on
                February 13, 2001).10.3
            Employee
                Benefits Agreement, dated February 12, 2001, by and between RPC,
                Inc.,
                Chaparral Boats, Inc. and Marine Products Corporation (incorporated
                herein
                by reference to Exhibit 10.3 to the Form 10 filed on February 13,
                2002).10.4
            Transition
                Support Services Agreement, dated February 12, 2001, by and between
                RPC,
                Inc. and Marine Products Corporation (incorporated herein by reference
                to
                Exhibit 10.4 to the Form 10 filed on February 13, 2001).10.5
            Tax
                Sharing Agreement, dated February 12, 2001, by and between RPC, Inc.
                and
                Marine Products Corporation (incorporated herein by reference to
                Exhibit
                10.5 to the Form 10 filed on February 13, 2001).10.6
            Compensation
                Agreement between James A. Lane, Jr. and Chaparral Boats, Inc.
                (incorporated herein by reference to Exhibit 10.6 to the Form 10
                filed on
                February 13, 2001).10.7
            Marine
                Products Corporation 2004 Stock Incentive Plan (incorporated herein
                by
                reference to Appendix B to the Definitive Proxy Statement filed on
                March
                24, 2004).10.8
            Form
                of stock option grant agreement under the 2001 Employee Stock Incentive
                Plan (incorporated herein by reference to Exhibit 10.7 to the Form
                10-K
                filed on March 21, 2003).10.9
            Form
                of time lapse restricted stock grant agreement under the 2001 Employee
                Stock Incentive Plan (incorporated herein by reference to Exhibit
                10.8 to
                the Form 10-K filed on March 21, 2003).10.10
            Form
                of performance restricted stock grant agreement under the 2001 Employee
                Stock Incentive Plan (incorporated herein by reference to Exhibit
                10.9 to
                the Form 10-K filed on March 21, 2003).10.11
            Form
                of stock option grant agreement under the 2004 Stock Incentive Plan
                (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q
                filed
                on November 1, 2004).10.12
            Form
                of time lapse restricted stock grant agreement under the 2004 Stock
                Incentive Plan (incorporated herein by reference to Exhibit 10.2 to
                the Form 10-Q filed on November 1, 2004).10.13
            Form
                of performance restricted stock grant agreement under the 2004 Stock
                Incentive Plan (incorporated herein by reference to Exhibit 10.3 to
                the Form 10-Q filed on November 1, 2004).10.14
            Summary
                of ‘at will’ compensation arrangements with the Executive Officers as of
                February 28, 2006 (incorporated herein by reference to Exhibit 10.14
                to
                the Form 10-K filed on March 13, 2006).10.15
            Summary
                of compensation arrangements with the Directors (incorporated herein
                by
                reference to Exhibit 10.15 to the Form 10-K filed on March 15,
                2005).10.16
            Supplemental
                Retirement Plan (incorporated herein by reference to Exhibit 10.16
                to the
                Form 10-K filed on March 15, 2005).10.17
            Summary
                of ‘At-Will’ compensation arrangements with the Executive Officers as of
                February 28, 2007.10.18
            Summary
                of Compensation Arrangements with Non-Employee Directors as of February
                28, 2007.10.19
            First
                Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
                Plan.21
            Subsidiaries
                of Marine Products Corporation23
            Consent
                of Grant Thornton LLP24
            Powers
                of Attorney for Directors31.1
            Section
                302 certification for Chief Executive Officer31.2
            Section
                302 certification for Chief Financial Officer32.1
            Section
                906 certification for Chief Executive Officer and Chief Financial
                Officer





Any
      schedules or exhibits not shown above have been omitted because they are not
      applicable.




57




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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. HubbellRichard
                A. Hubbell
              President
                and Chief Executive Officer
              March
                2, 2007




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.




**Name**
            **Title**
            **Date**/s/
                Richard A.
                Hubbell
              Richard
                A. Hubbell
            President
                and Chief Executive Officer
              (Principal
                Executive Officer)
            March
                2, 2007/s/
                Ben M.
                Palmer
              Ben
                M. Palmer
            Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)
            March
                2, 2007




The
      Directors of Marine Products (listed below) executed a power of attorney,
      appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign
      this report on their behalf.




R.
                Randall Rollins, Director
            James
                B. Williams, DirectorWilton
                Looney, Director
            James
                A. Lane, Jr., DirectorGary
                W. Rollins, Director
            Linda
                H. Graham, DirectorHenry
                B. Tippie, Director
            Bill
                J. Dismuke, Director




/s/Richard
      A.
      Hubbell


Richard
      A. Hubbell


Director
      and as Attorney-in-fact


March
      2,
      2007





58




**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE**





The
      following documents are filed as part of this report.




**FINANCIAL
                STATEMENTS AND REPORTS**
            PAGEManagement’s
                Report on Internal Control Over Financial Reporting
            27Report
                of Independent Registered Public Accounting Firm on Internal Control
                Over
                Financial Reporting
            28Report
                of Independent Registered Public Accounting Firm on Consolidated
                Financial
                Statements
            29Consolidated
                Balance Sheets as of December 31, 2006 and 2005
            30Consolidated
                Statements of Income for the three years ended December 31,
                2006
            31Consolidated
                Statements of Stockholders’ Equity for the three years ended December 31,
                2006
            32Consolidated
                Statements of Cash Flows for the three years ended December 31,
                2006
            33Notes
                to Consolidated Financial Statements
            34-51**SCHEDULE**Schedule
                II — Valuation and Qualifying Accounts
            59





Schedules
      not listed above have been omitted because they are not applicable or the
      required information is included in the consolidated financial statements or
      notes thereto.





**SCHEDULE
      II—VALUATION AND QUALIFYING ACCOUNTS**


**MARINE
                  PRODUCTS CORPORATION AND SUBSIDIARIES (in thousands of
                  dollars)****For
                  the years ended December 31, 2006, 2005 and 2004****Description**
              
              **Balance
                  at**
                **Beginning**
                **of
                  Period**
              
              **Charged
                  to**
                **Costs
                  and**
                **Expenses**
              
              **Net**
                **(Write-Offs)/**
                **Recoveries**
              
              **Balance**
                **at
                  End of**
                **Period**Year
                  ended December 31, 2006Allowance
                  for doubtful accounts
              
              $
              58
              
              $
              —
              
              $
              (6
              )
              $
              52Year
                  ended December 31, 2005Allowance
                  for doubtful accounts
              
              $
              60
              
              $
              —
              
              $
              (2
              )
              $
              58Year
                  ended December 31, 2004Allowance
                  for doubtful accounts
              
              $
              67
              
              $
              —
              
              $
              (7
              )
              $
              60


59




**SELECTED
      QUARTERLY FINANCIAL DATA (UNAUDITED)**




**First**
            
            **Second**
            
            **Third**
            
            **Fourth****(in
                thousands except per share data)**Restated
                for the three-for-two stock split effective March 10, 2005.**2006**Net
                sales
            
            $
            69,957
            
            $
            71,739
            
            $
            64,002
            
            $
            55,680Gross
                profit
            
            
            16,818
            
            
            16,136
            
            
            14,705
            
            
            11,748Net
                income
            
            
            5,776
            
            
            6,289
            
            
            4,562
            
            
            3,687Earnings
                per share — basic(a)
            
            
            0.15
            
            
            0.17
            
            
            0.12
            
            
            0.10Earnings
                per share — diluted(a)
            
            
            0.15
            
            
            0.16
            
            
            0.12
            
            
            0.09**2005**Net
                sales
            
            $
            72,586
            
            $
            77,566
            
            $
            65,032
            
            $
            56,873Gross
                profit
            
            
            18,948
            
            
            19,875
            
            
            17,145
            
            
            13,153Net
                income
            
            
            6,817
            
            
            7,956
            
            
            7,265
            
            
            4,185Earnings
                per share — basic(a)
            
            
            0.18
            
            
            0.21
            
            
            0.19
            
            
            0.11Earnings
                per share — diluted(a)
            
            
            0.17
            
            
            0.20
            
            
            0.18
            
            
            0.11





(a)
            The
                sum of the earnings per share for the four quarters may differ from
                annual
                earnings per share due to the required method of computing the weighted
                average shares in interim periods.




60