**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**




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





FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2004




**Commission
File No. 1-16263**




**MARINE
PRODUCTS CORPORATION**




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




**2170
PIEDMONT ROAD, NE**


**ATLANTA,
GEORGIA 30324**


**(404)
321-7910**




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




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




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


NONE




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
[  ] 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 an accelerated filer (as defined in Rule
12b-2 of the Act): [X] Yes
[  ] No




The
aggregate market value of Marine Products Corporation Common Stock held by
non-affiliates on June 30, 2004, the last business day of the registrant’s most
recent second fiscal quarter, was $148,399,889 based on the closing price on the
American Stock Exchange on June 30, 2004 of $12.37 (adjusted for the
three-for-two stock split payable March 10, 2005) per share.




Marine
Products Corporation had 39,198,696 (adjusted for the three-for-two stock split
payable March 10, 2005) shares of Common Stock outstanding as of February 23,
2005.




Documents
Incorporated by Reference




Portions
of the Proxy Statement for the 2005 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 ability to maintain our position as
a leading recreational powerboat manufacturer, to comply with existing
environmental and safety regulations, to make strategic acquisitions, and to
meet our liquidity and future growth requirements and pay cash dividends using
our existing capital structure and future cash flow generation. These statements
also include assumptions regarding the long-term return of the assets in the
Company's defined benefit pension plan and future contributions to the plan.
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 9 for 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**




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. As part of the transaction, RPC’s stockholders
received 0.6 shares of Marine Products common stock for every one share of RPC
common stock owned as of February 16, 2001, the record date for the spin-off,
with fractional shares being settled in cash.




**Overview**




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 164 domestic and 25 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. The most recent available industry statistics [source:
Statistical Surveys, Inc. report dated September 30, 2004] 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 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.





2









Marine
Products Corporation also manufactures and sells Robalo sport fishing boats,
which are powered by outboard engines and designed primarily for salt-water
sport fishing. 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’s ownership of Robalo is the result of
the acquisition, in June 2001, of certain operating and intangible assets of
Robalo, formerly a segment of the U.S. Marine division of Brunswick Corporation.




Since the
acquisition by Marine Products, Robalo has expanded its product offerings to
include a total of nine models ranging from 19 to 26 feet in length. Net sales
of the Robalo products accounted for over eight percent of consolidated 2004 net
sales. The Company believes that Robalo’s share of the outboard sport fishing
boat market is less than 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
    
    
    15
    
    
    18′-28′
    
    $
      $
    19,000
      -
      140,000
    
    
    Fiberglass
      bowriders and closed deck runabouts. Encompasses affordable, entry-level
      to mid-range sportboats. Marketed as high value runabouts for family
      groups.Chaparral
      -Sunesta Deckboats
    
    
    6
    
    
    21′-28′
    
    $
      $
    38,000
      -
      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
    
    
    24′-35′
    
    $
      $
    58,000
      -
      290,000
    
    
    Fiberglass,
      accommodation-focused cruisers. Marketed to experienced boat owners
      through trade magazines and boat show exhibitions.Robalo
      -
      Sport
      Fishing
      Boats
    
    
    9
    
    
    18′-26′
    
    $
      $
    29,000
      -
      127,000
    
    
    Sport
      fishing boats for large freshwater lakes or salt-water use. Marketed to
      experienced fishermen.




**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. 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 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 hulls 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.





3





In 2002,
Chaparral became ISO 9001: 2000 certified. ISO 9001: 2000 is an international
designation of design, manufacturing, and customer service processes. ISO 9001:
2000 surpasses previous ISO designations. The audit process was conducted by Det
Norske Veritas (DNV) as registrar. Management believes Chaparral is the third
largest stern-drive boat manufacturing brand to hold the ISO 9001: 2000
certification.




**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 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 for the Chaparral brand are purchased through the American Boat Builders
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 engine supply contracts for
its Robalo product line 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 2004 the price of
these raw materials increased significantly, and negatively impacted Marine
Products' profits.




**Sales
and Distribution**




Sales are
made through approximately 130 Chaparral dealers and 34 Robalo dealers located
in markets throughout the United States. Twenty of these dealers sell both
brands. Dealers market directly to consumers at boat show exhibitions and in the
dealers’ showrooms. Marine Products also has 25 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’ seven independent field sales representatives call upon existing
dealers and develop new dealer relationships. The field sales force is 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.




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 that
within several years, international sales could produce additional sales growth.
Due to US dollar weakness, international sales have increased but still remain
less than 10 percent of total sales.




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 monitoring their inventory levels. Knowledge of inventory levels at
the individual dealers facilitates production schedules 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 cancellations
have not had a material effect on Marine Products.





4




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 three 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 qualifying 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
agreements 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, 2004, Marine Products’ aggregate obligation to repurchase
boats under these floor plan financing programs described above was
approximately $3,500,000. 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 Chaparral or Robalo boats
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, or promote the sales of older models in
dealer inventory. This helps to stabilize Marine Products’ manufacturing between
the peak and off-peak periods, and to promote sales of certain models. For the
2005 model year (which commenced July 1, 2004), Marine Products offered its
dealers several sales incentive programs based on dollar volumes and timing of
dealer purchases. Programs offered include sales discounts, inventory reduction
rebates, and payment of floor plan financing interest charged by qualified floor
plan providers to dealers generally through April 1, 2005. After the interest
payment programs end, interest costs revert to the dealer at the rates set by
the lender. The dealers make curtailment payments (principal payments) on the
boats as set forth in the floor plan agreements between the dealer and their
particular lender. In addition, Marine Products periodically conducts sales
promotion programs designed to increase sales of a particular model during
specific periods.




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.




As of
December 31, 2004, the sales order backlog was 2,023 units with estimated net
sales of approximately $62 million. This represents an approximate 13 week
backlog based on recent production levels. The Company typically does not
manufacture a significant number of boats for inventory mainly by monitoring
various criteria discussed earlier in order to retain the flexibility to
manufacture boats in response to immediate demand. The Company occasionally
manufactures boats for its own inventory rather than immediate delivery 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.




**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.




Chaparral
has been a leading innovator in the recreational boating industry. One of
Chaparral’s most innovative designs is the full-length “Extended V-Plane”
running surface. Typically, sterndrive boats have a several foot gap on the
bottom rear of the hull where the engine enters the water. With Chaparral’s
design, 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. All of Chaparral’s models have the “Extended V-Plane”
running surface. Although the basic hull designs are similar, the Company
introduces a variety of new models each year. Any given model is generally in
production only between five and seven years before being replaced, updated, or
discontinued.




Robalo’s
hulls utilize the Hydro Lift TM hull
design. 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.





5




In
support of its new product development efforts, Marine Products incurred
research and development costs of $1,729,000 in 2004, $1,075,000 in 2003 and
$1,605,000 in 2002.





****


**Industry
Overview**




For 2004,
the recreational boat industry accounted for less than one percent of the United
States Gross Domestic Product. The recreational marine market is a mature
market, with 2003 (latest data available to us) retail expenditures of $30
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”). Also according to the NMMA, the most recent data available
indicate that sales to dealers of traditional powerboats increased 17.4 percent
during the 11 months ended November 30, 2004 compared to the same period in the
prior year. 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 pleasure boat industry is
consumers’ diminishing leisure time.




The NMMA
conducts various surveys of pleasure boat industry trends, and the most recent
surveys indicate that more than 72 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, 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.




Sales of
sterndrive boats in 2004 totaling 58,160 units (source: Info-Link Technologies,
Inc.), accounted for approximately 42 percent of the total new fiberglass
powerboat units sold that were between 18 and 35 feet in hull length. Sales of
the sterndrive boats had an estimated total retail value of $2.8 billion, or an
average retail price per boat of approximately $48,000. Management believes that
the five largest states for boat sales are California, Michigan, Florida,
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
$2.8 billion in retail sales during 2004. This is the market segment in which
Marine Products competes. The table below shows the estimated sales of this
segment by category for 2004 and 2003, ranked by 2004 retail sales (source:
Info-Link Technologies, Inc.):




**2004**
    
    **2003****Units**
    
    **Sales
      ($ B)**
    
    **Units**
    
    **Sales
      ($ B)**Sterndrive
      Boats
    
    
    58,160
    
    $
    2.8
    
    
    58,124
    
    $
    2.6Outboard
      Boats
    
    
    61,549
    
    
    2.0
    
    
    56,369
    
    
    1.6Inboard
      Boats
    
    
    14,139
    
    
    0.9
    
    
    13,104
    
    
    0.8Jet
      Boats
    
    
    3,553
    
    
    0.1
    
    
    3,403
    
    
    0.1TOTAL
    
    
    137,401
    
    $
    5.8
    
    
    131,000
    
    $
    5.1





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 200 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, 2004 (latest information available), the top five sterndrive
manufacturers have a market share of approximately 50 percent. Chaparral’s
market share during the period was 8.27 percent.




Several
factors influence sales trends in the recreational boating industry, including
general economic growth, consumer confidence, household incomes, weather, tax
laws, and demographics. Interest rates and fuel prices can have a direct impact
on boat sales, as well as trends at the local, regional and national level.
Competition from other leisure and recreational activities, such as vacation
properties and travel, can also affect sales of recreational boats.





6







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 200
recreational boat manufacturers.




**Growth
Strategies**




The
pleasure boat market is a mature industry. According to Info-Link Technologies,
Inc., unit sales of sterndrive boats declined by more than three percent between
2002 and 2004, so Marine Products has grown its unit sales and net sales
primarily through increasing market share and by expanding the number of models
and product lines. Chaparral has grown its sterndrive market share in the 18 to
35 feet length category from 4.75 percent in fiscal 1996 to 8.27 percent during
the nine months ended September 2004 (the most recent information provided to us
by Statistical Surveys, Inc.). The Company continues to expand its product
offerings in the outboard boats 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 12 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.




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 approximately 189 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. 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.




**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
for the nine months ended September 30, 2004 (the most current information
available to us). 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 71
percent of all United States retail sterndrive boat registrations during the
twelve months ended December 31, 2004.





7




1.
    Bayliner*


2.
    Sea
      Ray*


3.
    Chaparral


4.
    Four
      Winns **


5.
    Glastron
      **


6.
    Crownline


7.
    Larson**


8.
    Stingray


9.
    Maxum*


10.
    Rinker




The
outboard engine powered market has a large breadth and depth, accounting for
almost 45 percent of all boats sold. Robalo’s share of the off shore sport
fishing boat market during the nine months ended September 30, 2004 was less
than one percent. Primary competitors for Robalo include Sea-Pro,* Grady-White,
Mako, 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 with substantially all
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.




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, 2004, Marine Products had approximately 1,200 employees, of whom
six were management and 45 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, 2004,
there were seven Chaparral hull designs registered under the Vessel Hull Design
Protection Act. These designs were registered in 2002. There were no Robalo hull
designs registered as of December 31, 2004.





8





**Seasonality**




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




**Inflation**




Inflation
has not historically had a material effect on Marine Products’ operations.
During the fourth quarter of 2004, however, the prices of certain raw materials
used in the Company's production increased. The Company responded to this
increase in raw materials costs by instituting price increases to its dealers
effective January 1, 2005. If the prices of these raw materials continue to
increase or the prices of other factors of production increase, Marine Products
will attempt to increase its prices to offset its increased expenses. No
assurance can be given, however, that the Company will be able to adequately
increase its prices in response to inflation. Inflation can also impact Marine
Products’ sales and profitability. New boat buyers typically finance their
purchases. Because higher inflation results in higher interest rates, the cost
of boat ownership increases. Prospective buyers may choose to delay their
purchases or buy a less expensive boat.




**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.




**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 uncertainty, such as the current threats in the
Middle East, 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, thereby higher interest rates increase the borrowing costs and,
accordingly, the cost of doing business for dealers and cost of a boat purchase
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.




*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 powerboat
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 powerboat 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.





9





*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.




*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 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.





10







*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. 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’ S* *tock
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 Marine Products’ stock trading prices,
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 Company” exemption under Part 8, Sec. 801(a)
of the American Stock Exchange (“AMEX”) Company Guide. The Company is a
“Controlled Company” 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
Company,” the Company need not comply with certain AMEX 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 66
percent of Marine Products’ outstanding shares of common stock. As a result,
these stockholders will 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
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 $3,800 per month in rent. Marine Products may cancel this
arrangement at any time after giving a 30 day notice. Chaparral owns and
maintains approximately 1,063,000 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. Marine Products’ total square footage under roof is
allocated as follows: manufacturing — 795,000, research and development —
65,000, warehousing — 201,000, office and other — 85,000.





11





**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
position 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 2004.




**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)
    73
    2/28/01Chairman
      of the BoardRichard
      A. Hubbell (2)
    60
    2/28/01President
      and
      Chief
      Executive OfficerJames
      A. Lane, Jr. (3)
    62
    2/28/01Executive
      Vice President and
      President
      of Chaparral Boats, Inc.Linda
      H. Graham (4)
    68
    2/28/01Vice
      President and
      SecretaryBen
      M. Palmer (5)
    44
    2/28/01Vice
      President,
      Chief
      Financial Officer and Treasurer




(1)
    R.
      Randall Rollins began working for Rollins, Inc. 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 held the position of Chief Executive Officer of RPC
      until 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.
      (consumer services) since October 1991. He is also on the boards of Dover
      Downs Gaming and Entertainment, Inc., and Dover Motorsports, Inc. He was
      on the boards of SunTrust Banks, Inc., SunTrust Banks of Georgia until
      April 2004.(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.








12




**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 on the American Stock Exchange under the ticker
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, for
stockholders of record on February 10, 2005. In addition, the share and dividend
information for the fiscal 2003 and first quarter of fiscal 2004 have been
restated for the stock split effective March 10, 2004. At February 23, 2005,
there were 39,198,696 (adjusted for the three-for-two stock split) shares of
common stock outstanding.




At the
close of business on February 23, 2005, there were approximately 3,300 holders
of record of common stock. The high and low prices of Marine Products’ common
stock for each quarter in the years ended December 31, 2004 and 2003 were as
follows:




**2004**
    **2003****Quarter**
    
    
    **High**
    
    
    **Low**
    
    
    **Dividends**
    
    
    **High**
    
    
    **Low**
    
    
    **Dividends**First
    
    $
    10.00
    
    $
    8.07
    
    $
    0.027
    
    $
    5.13
    
    $
    4.13
    
    $
    0.018Second
    
    
    13.13
    
    
    9.15
    
    
    0.027
    
    
    5.11
    
    
    3.93
    
    
    0.018Third
    
    
    12.57
    
    
    10.20
    
    
    0.027
    
    
    7.11
    
    
    4.67
    
    
    0.018Fourth
    
    $
    19.31
    
    $
    11.57
    
    $
    0.027
    
    $
    8.45
    
    $
    6.05
    
    $
    0.018





The
Company has paid cash dividends since the second quarter of 2002. Beginning in
the first quarter of 2003, Marine Products increased its quarterly cash dividend
from $0.009 to $0.018 per common share. At the January 27, 2004 Board of
Directors’ Meeting, the Board approved a 50 percent increase in the cash
dividend, from $0.018 to $0.027 on the split number of shares. At the January
25, 2005 Board of Directors’ Meeting, the Board approved an additional 50
percent increase in the cash dividend, from $0.027 to $0.040 on the split number
of shares. The Company expects to continue to pay cash dividends to the common
stockholders, subject to the earnings and financial condition of the Company and
other relevant factors.







*Issuer
Purchases of Equity Securities*




Shares
repurchased in the fourth quarter of 2004 are outlined below. All share and per
share data have been restated for the three-for-two stock split effective
February 10, 2005 payable March 10, 2005.


**Period**
    
    **Total**
      **Number
      of Shares (or**
      **Units)**
      **Purchased**
    
    
    **Average**
      **Price
      Paid**
      **Per
      Share**
      **(or
      Unit)**
    
    **Total
      number of**
      **Shares
      (or Units)**
      **Purchased
      as**
      **Part
      of Publicly**
      **Announced
      Plans**
      **or
      Programs**
    
    **Maximum
      Number (or**
      **Approximate
      Dollar Value) of Shares (or Units) that May Yet be Purchased Under the
      Plans or Programs**October
      1, 2004 to
      October
      31, 2004
    
    
    -
    
    
    $
    -
    
    
    -
    
    
    1,329,374November
      1, 2004 to
      November
      30, 2004
    
    
    30,368
    (1
    )
    
    12.65
    
    
    29,100
    
    
    1,300,274December
      1, 2004 to
      December
      31, 2004
    
    
    393
    (2
    )
    
    18.13
    
    
    -
    
    
    1,300,274Totals
    
    
    30,761
    
    
    $
    12.72
    
    
    29,100
    
    
    1,300,274




(1)
    Includes
      1,268 shares at an average price of $16.72 per share tendered to the
      Company in connection with option exercises




(2)
    All
      shares were tendered to the Company in connection with option
      exercises





13







The
Company’s Board of Directors announced a stock buyback program in April 2001
authorizing the repurchase of 2,250,000 shares. The program does not have a
predetermined expiration date.









**Item
6. Selected Financial Data**




The
following table summarizes certain selected combined financial data of Marine
Products and Chaparral including data for periods prior to the February 28, 2001
spin-off from RPC, Inc. 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.

















14




All
earnings per share, shares outstanding and dividends per share have been
restated for the three-for-two stock split effective March 10, 2005 for shares
held on February 10, 2005 and for the three-for-two stock split effective March
10, 2004.




**Years
      Ended December 31,****(In
      thousands, except share, per share and employee data)****2004**
    
    **2003**
    
    **2002**
    
    **2001**
    
    **2000****Statement
      of Income Data:**Net
      sales
    
    $
    252,418
    
    $
    193,980
    
    $
    162,682
    
    $
    134,689
    
    $
    148,276Cost
      of goods sold
    
    
    186,832
    
    
    143,663
    
    
    125,282
    
    
    105,344
    
    
    115,876Gross
      profit
    
    
    65,586
    
    
    50,317
    
    
    37,400
    
    
    29,345
    
    
    32,400Selling,
      general and administrative expenses
    
    
    29,810
    
    
    23,015
    
    
    18,018
    
    
    16,223
    
    
    16,945Operating
      income
    
    
    35,776
    
    
    27,302
    
    
    19,382
    
    
    13,122
    
    
    15,455Interest
      income
    
    
    590
    
    
    501
    
    
    600
    
    
    689
    
    
    280Gain
      on settlement of claim
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    6,817Income
      before income taxes
    
    
    36,366
    
    
    27,803
    
    
    19,982
    
    
    13,811
    
    
    22,552Income
      tax provision
    
    
    12,623
    
    
    9,731
    
    
    7,593
    
    
    5,248
    
    
    8,591**Net
      income**
    
    $
    23,743
    
    $
    18,072
    
    $
    12,389
    
    $
    8,563
    
    $
    13,961**Earnings
      per share****(a)**Basic
    
    $
    0.62
    
    $
    0.47
    
    $
    0.32
    
    $
    0.23
    
    $
    0.37Diluted
    
    $
    0.58
    
    $
    0.45
    
    $
    0.31
    
    $
    0.22
    
    $
    0.37**Dividends
      paid per share**
    
    $
    0.11
    
    $
    0.07
    
    $
    0.03
    
    $
    0.03
    
    $
    —**Other
      Financial and Operating Data:**Gross
      profit margin percent
    
    
    26.0
    %
    
    25.9
    %
    
    23.0
    %
    
    21.8
    %
    
    21.9
    %Operating
      margin percent
    
    
    14.2
    %
    
    14.1
    %
    
    11.9
    %
    
    9.7
    %
    
    10.4
    %Net
      cash provided by operating activities
    
    $
    29,405
    
    $
    17,828
    
    $
    11,696
    
    $
    10,231
    
    $
    15,464Net
      cash (used for) provided by investing activities
    
    
    (1,924
    )
    
    (4,432
    )
    
    2,860
    
    
    (5,919
    )
    
    (4,198
    )Net
      cash used for financing activities
    
    
    7,110
    
    
    4,432
    
    
    2,229
    
    
    456
    
    
    13,600Capital
      expenditures
    
    $
    2,838
    
    $
    3,707
    
    $
    3,800
    
    $
    5,456
    
    $
    4,198Employees
      at end of year
    
    
    1,187
    
    
    975
    
    
    867
    
    
    758
    
    
    807Factory
      and administrative space at end of year (square ft.)
    
    
    1,146
    
    
    1,128
    
    
    898
    
    
    898
    
    
    670**Balance
      Sheet Data at end of year:**Cash
      and cash equivalents
    
    $
    46,615
    
    $
    26,244
    
    $
    17,280
    
    $
    4,953
    
    $
    1,097Marketable
      securities — current
    
    
    132
    
    
    1,402
    
    
    1,929
    
    
    5,478
    
    
    —Marketable
      securities — non-current
    
    
    6,202
    
    
    5,930
    
    
    4,865
    
    
    7,781
    
    
    —Inventories
    
    
    25,869
    
    
    21,770
    
    
    20,685
    
    
    14,478
    
    
    15,064Working
      capital
    
    
    61,989
    
    
    45,984
    
    
    33,390
    
    
    20,311
    
    
    10,488Property,
      plant and equipment, net
    
    
    18,362
    
    
    17,761
    
    
    16,216
    
    
    14,230
    
    
    9,796Total
      assets
    
    
    109,734
    
    
    86,314
    
    
    71,063
    
    
    56,513
    
    
    103,449Total
      stockholders’ equity
    
    $
    87,372
    
    $
    69,966
    
    $
    56,833
    
    $
    46,345
    
    $
    92,593







(a)   Earnings
per share for the years 2001 and 2000 have been computed based on the
outstanding shares as of the spin-off date adjusted for subsequent stock
splits.  These numbers have not been audited.





15





**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,” “Financial Statements and Supplementary Data.” See
also “Forward-Looking Statements” on page 2.


****


**Overview**




Marine
Products Corporation, through our wholly-owned subsidiaries Chaparral and
Robalo, is a leading manufacturer of recreational fiberglass powerboats. Our
sales and profits are generated by selling the products that we manufacture to a
network of independent dealers who in turn sell the products to retail
customers. These dealers are located throughout the continental United States
and in several international markets. 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
      to 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 in the
      event of an industry downturn,


·
    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 sale price
per unit, and gross profit margins, among others, as indicators of the success
of our strategies. Marine Products' financial results are affected by consumer
confidence – because pleasure boating
is a discretionary expenditure, interest rates – because many retail customers finance the
purchase of their boats, and other socioeconomic and environmental factors such
as availability of leisure time, consumer preferences, demographics and the
weather.





Industry
trends during 2004 were highlighted by higher wholesale and retail powerboat
sales, due to continued low interest rates, an improving domestic economy, and a
shift in consumer preferences after September 11, 2001 towards safe recreational
activities in a controlled environment close to home, which do not involve air
travel. Improving industry conditions have been reflected in Marine Products'
financial results, and have also resulted in management's decision to increase
production in existing facilities and consider expansion of its productive
capacity.





The
results of our strategies and the improving industry conditions are reflected in
our 2004 financial results and operating statistics. We generated record sales
and profits in 2004. Net sales of $252.4 million increased 30.1 percent compared
to the prior year. Net sales increased due to a 16.7 percent increase in unit
sales and a 11.1 percent increase in the average selling price per boat. Unit
sales and average selling price increased in each of our four models. Gross
profit as a percentage of sales was 26.0 percent, approximately the same as the
prior year. Our gross profit margin did not improve in 2004 as it has in prior
years. Although we continued to execute our strategies of building larger, more
profitable models and managing our production for optimum efficiency, these
profitability improvements were offset by an increase in raw materials costs,
and increases in discounts to our dealers on selected models, which we
determined would be prudent in order to improve our model mix. We responded to
the increase in raw materials costs by instituting a price increase of one to
one and a half percent effective January 1, 2005.





16





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, 2004 (latest data available to
us), Chaparral's market share in the 18 to 35 foot sterndrive category was 8.27
percent, a decline from our market share in the same category for the twelve
months ended December 31, 2003 of 8.65 percent. This decline was concentrated in
the smaller size boats in our market, the 18 to 20 foot range. This decline 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 maintaining profitability takes precedence over growing our
market share.





**Outlook**




Management
believes that net sales and profits will continue to increase in 2005, based on
the projections of continued low interest rates and improving economic
conditions. This belief is also based on reports of attendance and sales during
the winter 2005 retail boat show exhibition season, which began in December
2004. Media reports regarding recent boat show exhibitions indicate that
attendance has increased by as much as 10 percent compared to last year,
although several shows reported decreased attendance due to inclement weather.
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 purchasing decisions at a boat
show exhibition. However, there can be no assurance that this relationship will
continue in 2005 or subsequent years. Pleasure boating is a discretionary
consumer expenditure, therefore, an increase in interest rates or decline in
consumer confidence due to a weakening economy, continued global conflict,
rising interest costs or fuel costs could have a serious and immediate negative
impact on sales and profits. At the present time, Marine Products as well as
other manufacturers are refining and 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. Management believes that these efforts may result in increased
marketing and other selling, general and administrative expenses in the
future.




Our
ability to grow our sales and profits in 2005 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**




The Board
of Directors, at their quarterly meeting on January 25, 2005, authorized a
three-for-two stock split by the issuance on March 10, 2005 of one additional
common share for each two common shares held of record at February 10, 2005.
Accordingly, the par value of additional shares issued will be adjusted between
common stock and capital in excess of par value, and fractional shares resulting
from the stock split will be settled in cash. All share data have been
retroactively adjusted for this split and the stock split effective March 10,
2004.


**** ****


**($’s
      in thousands)**
    
    **2004**
    
    **2003**
    
    **2002**Total
      number of boats sold
    
    
    7,310
    
    
    6,265
    
    
    5,625Average
      gross selling price per boat
    
    $
    34.9
    
    $
    31.4
    
    $
    29.4Net
      sales
    
    $
    252,418
    
    $
    193,980
    
    $
    162,682Percentage
      of cost of goods sold to net sales
    
    
    74.0
    %
    
    74.1
    %
    
    77.0
    %Percentage
      of selling, general and administrative expense
      to
      net sales
    
    
    11.8
    %
    
    11.9
    %
    
    11.1
    %Operating
      income
    
    $
    35,776
    
    $
    27,302
    
    $
    19,382Warranty
      expense
    
    $
    4,789
    
    $
    3,646
    
    $
    2,745









*Year
Ended December 31, 2004 Compared To Year Ended December 31, 2003*




*Net
Sales.* Marine
Products’ net sales increased by $58.4 million or 30.1 percent in 2004 compared
to 2003. The increase was due to a 16.7 percent increase in the number of units
sold, an 11.1 percent increase in the average selling price per unit, and an
increase in parts and accessories sales. The increase in the number of units
sold was realized in the Chaparral sportboat and deckboat lines, but included
increased unit sales in all product lines. The increase in average selling price
occurred among all product lines as well, but was highest in the Chaparral
sportboat line, which sold more large sportboats than in 2003, in addition to
the overall price increases implemented for the 2005 model year that began in
July 2004. In addition, the Company eliminated the lower-priced SS sportboat in
2004. Increased sales of larger Robalo sport
fishing boats and Chaparral cruisers were also responsible for the average
selling price increase during 2004. The increase in parts and accessories sales
was a result of the increasing numbers of boats sold in prior years that are
still in operation and require routine maintenance and repair.





17






*Cost
of Goods Sold.* Cost of
goods sold increased 30.0 percent in 2004 compared to 2003, consistent with the
increase in net sales. As a percentage of net sales, cost of goods decreased
slightly from 2003 to 2004, because of leverage gained from higher production
volumes and an overall shift in model mix to larger boats which typically
generate higher gross margins. This was partially offset by a significant
increase in selected raw material costs, including stainless steel and resin
costs, from 2003 to 2004.




*Selling,
General and Administrative Expenses.*  Selling,
general and administrative expenses increased 29.5 percent in 2004 compared to
2003. 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. As a percentage of net sales,
these expenses did not vary materially.




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. Warranty expense was 1.9 percent of net sales in 2004 and 2003. Warranty
expense increased in 2004 due to increased sales.




*Interest
Income.* Interest
income was $0.6 million in 2004 compared to $0.5 million in 2003. 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 investment returns in 2004 together with a
higher balance of investable funds.




*Income
Tax Provision.* The
effective tax rate was slightly lower at 34.7 percent in 2004 compared to 35.0
percent in 2003. The income tax provision of $12.6 million was 29.7 percent
higher than the income tax provision in 2003 as a result of higher income before
income taxes.




*Year
Ended December 31, 2003 Compared To Year Ended December 31, 2002*




*Net
Sales.*  Marine
Products’ net sales increased by $31.3 million or 19.2 percent in 2003 compared
to 2002. The increase was primarily due to an 11.4 percent increase in units
sold, as well as a 6.8 percent increase in the average selling price of boats
sold. The increases in units sold were realized primarily in the Chaparral
sportboat and cruiser lines, and in the Robalo sport fishing boat line. The
increase in average selling prices resulted from increased sales of larger
cruisers, increased Robalo unit sales, and overall price increases that were
implemented for the 2004 model year, which began in July 2003. The net sales
increase was also due to higher parts and accessories sales, which is a result
of the increasing numbers of boats sold in prior years that are still in
operation and require routine maintenance and repair.




Management
believes that in general, the increase in unit volume during the year resulted
from favorable economic and industry conditions, including continued low
interest rates, an improving domestic economy, and a trend in which consumers
choose recreational activities that are safe, close to home, and can be enjoyed
in a controlled environment with family and friends. The available industry
statistics also indicate that Chaparral continued to gain market share in the 18
to 35 foot sterndrive pleasure boat market during 2003, which management
believes was due to increased industry recognition of the Company’s product
quality, enhanced dealer incentive and training programs, and new boat models
with designs and features that had broader consumer appeal. The Robalo unit
sales increased by 64.1 percent, due to an expanded model offering including
larger sizes and more available design options, which led to broader dealer
acceptance of the Robalo line and ultimately increased sales volumes.




*Cost
of Goods Sold.*  Cost of
goods sold increased 14.7 percent in 2003 compared to 2002, consistent with the
increase in net sales. As a percentage of net sales, cost of goods sold
decreased from 2002 to 2003, because of efficiencies gained from higher
production volumes, especially within the Robalo line, and an overall shift in
model mix to larger boats which typically generate higher margins.




*Selling,
General and Administrative Expenses.*  Selling,
general and administrative expenses were $23.0 million in 2003 compared to $18.0
million in 2002, an increase of 27.7 percent. The Company continued to create
some expense leverage with higher net sales. 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, as well as increased costs associated with public company
compliance. These increases were partially offset by a decrease in research and
development expense, related to fewer new model design activities in 2003
compared to 2002 when the Company performed a large cruiser design project and
several projects to expand the Robalo line. As a percentage of net sales, these
expenses increased because the incentive compensation and sales commission
expenses were higher due to the increase in gross profit margin and operating
margin percents.





18




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. Warranty expense was 1.9 percent of net sales in 2003 and 1.7 percent of
net sales in 2002. Warranty expense as a percentage of net sales increased in
2003 due to increased sales of cruisers which generally incur higher warranty
claim costs as a percentage of net sales due to additional features and
increased customer service demands in this boat line.




*Interest
Income.* Interest
income was $0.5 million in 2003 compared to $0.6 million in 2002. Marine
Products generates interest income from investment of its available cash
primarily in overnight and marketable securities. The decrease in interest
income resulted primarily from lower investment returns in 2003 consistent with
lower interest rates offset slightly by a higher balance of investable funds.




*Income
Tax Provision.* The
effective tax rate was 35.0 percent in 2003, compared to 38.0 percent in 2002.
The decrease in rate reflects the effect of implementing tax planning
strategies. The effective rate change increased net income by $0.8 million. The
income tax provision of $9.7 million was $2.1 million or 28.2 percent higher
than the income tax provision of $7.6 million for the prior year as a result of
higher income before income taxes, partially offset by the lower effective tax
rate.




**Liquidity
and Capital Resources**




*Cash
Flows*




The
following table sets forth the historical cash flows for the twelve months ended
December 31:




**(in
      thousands)**
    
    **2004**
    
    **2003**
    
    **2002**Net
      cash provided by operating activities
    
    $
    29,405
    
    $
    17,828
    
    $
    11,696Net
      cash (used for) provided by investing activities
    
    
    (1,924
    )
    
    (4,432
    )
    
    2,860Net
      cash used for financing activities
    
    $
    7,110
    
    $
    4,432
    
    $
    2,229




2004




Cash
provided by operating activities increased during 2004 by $11.6 million compared
to 2003. The increase was due to higher operating income in 2004 compared to
2003, together with lower working capital requirements in 2004 primarily due to
a decrease in accounts receivable together with increases in accounts payable,
caused by timing differences.




Cash used
for investing activities decreased $2.5 million compared to 2003. This change
was caused by a $1 million net decrease in marketable securities in 2004
compared to 2003 due to a large number of current marketable securities coming
due in December 2004 that were not reinvested until early 2005. Capital
expenditures decreased slightly to $2.8 million in 2004 compared to $3.7 million
in 2003. In 2004, the capital expenditures were primarily for additions to
certain manufacturing plants and purchase of operating equipment. In 2003, the
largest capital expenditures related to the completion of construction of the
administrative building at Chaparral’s Nashville, Georgia headquarters which was
begun in 2002, the purchase of operating equipment, and the purchase of
additional buildings for warehouse storage space.




Cash used
for financing activities increased $2.7 million in 2004 compared to 2003. The
increase resulted from higher cash amounts used to purchase the Company’s common
stock in the open market, and an increase in dividends resulting from the
Company’s decision during the first quarter of 2004 to increase its quarterly
dividend from $0.018 per share to $0.027 per share.




2003




Cash
provided by operating activities increased during 2003 by $6.1 million compared
to 2002. The increase was due to higher operating income in 2003 compared to
2002, partially offset by higher working capital requirements in
2003.




Cash used
for investing activities increased $7.3 million compared to 2002. This change
was caused by overall increase in available cash for investment. Capital
expenditures decreased slightly in 2003 compared to 2002. In 2003, the largest
capital expenditures related to the completion of the administrative office
building, the purchase of operating equipment and the purchase of a building for
warehouse storage space.





19







Cash used
for financing activities increased $2.2 million in 2003 compared to 2002. The
increase relates to cash used to purchase the Company’s common stock in the open
market, and an increase in dividends resulting from the Company’s decision
during the first quarter of 2003 to increase its quarterly
dividend.




*Financial
Condition and Liquidity*




The
Company’s financial condition as of December 31, 2004, was strong. We believe
the liquidity provided by our existing cash, cash equivalents and marketable
securities, our overall strong capitalization including no debt, and cash
expected to be generated from operations, will be sufficient to meet our
requirements for at least the next twelve months..




The
Company’s decisions about the amount of cash to be used for investing and
financing purposes are influenced by its capital position and the expected
amount of cash to be provided by operations. We believe our liquidity will allow
us the ability to continue to grow and provide us the opportunity to take
advantage of strategic business opportunities that may arise.




*Cash
Requirements*




Management
expects that capital expenditures during 2005 will be approximately $6.0
million, and are projected to include investment towards enhancements to certain
manufacturing plants and purchase of a parts warehouse.




We expect
that additional contributions to the defined benefit pension plan of
approximately $0.3 million will be required in 2005 to achieve the Company’s
funding objective.




On
January 25, 2005, the Board of Directors approved a 50 percent increase in the
quarterly cash dividend, from $0.027 to $0.040. Based on the shares outstanding
on December 31, 2004, the aggregate annual amount would be
approximately $6.2 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 949,726 shares in the open market pursuant to a
resolution in April 2001 by the Board of Directors and, as of December 31, 2004,
can buy back 1,300,274 additional shares under the program. Refer to
Issuer Purchases of Equity Securities on page 13 for details regarding shares
purchased in the fourth quarter of 2004.




**Contractual
Obligations**




The
following table summarizes the Company’s contractual obligations as of December
31, 2004:




**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
    
    
    150,000
    
    
    —
    
    
    —
    
    
    —
    
    
    150,000Operating
      leases (1)
    
    
    35,000
    
    
    10,000
    
    
    25,000
    
    
    —
    
    
    —Purchase
      obligations (2)
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    —Other
      long-term liabilities (3)
    
    
    300,000
    
    
    300,000
    
    
    —
    
    
    —
    
    
    —Total
    
    $
    485,000
    
    $
    310,000
    
    $
    25,000
    
    $
    —
    
    $
    150,000






(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.














20




**Off
Balance Sheet Arrangements**




To assist
dealers in obtaining financing for the purchase of its boats for inventory, the
Company has entered into agreements with various dealers and selected
third-party lenders to guarantee varying amounts of qualifying dealers’ debt
obligations. The Company’s obligation under these guarantees becomes effective
in the case of default by the dealer. The agreements provide for the return of
all repossessed boats in “like new” condition to the Company, in exchange for
the Company’s assumption of specified percentages of the dealers’ unpaid debt
obligation on those boats. As of December 31, 2004, the maximum repurchase
obligation outstanding under these agreements which expire in 2005 and 2006
totaled approximately $3.5 million. The Company has recorded the estimated fair
value of this guarantee; at December 31, 2004, this amount is immaterial and did
not change from the prior year.




**Related
Party Transactions**




In
conjunction with its spin-off from RPC in 2001, the Company and RPC entered into
various agreements that define 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 $546,000 in 2004, $496,000 in 2003 and $588,000 in
2002. The Company’s directors are also directors of RPC and all of the executive
officers with the exception of Mr. Lane are employees of both the Company and
RPC. The
Company paid $171,000 in 2003 and $332,000 in 2002 to a division of RPC for the
purchase, installation and service of overhead cranes.






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. Following the spin-off of the
Company in 2001, RPC has charged the Company for, and the Company has been
obligated to pay, its allocable share of pension costs and the associated
funding obligation related to the prior service liabilities of Chaparral
employees. Effective December 2003, the related prior service liabilities
totaling $3,314,000 and pension assets totaling $2,517,000 were transferred
within the multiple employer plan by RPC to the Company. Accordingly, during
2004, the pension costs and funding obligations were incurred directly by the
Company.




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. The amounts transferred as
settlements from RPC to the Company totaled approximately $19,000 in 2004, $0 in
2003 and $140,000 in 2002.




**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 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.





21




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 units
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 have been 12.9 percent in 2004, 12.5 percent in 2003,
and 12.3 percent in 2002. A 0.25 percentage point change in incentives as a
percentage of gross sales during 2004 would have increased or decreased net
sales, gross margin and operating income by approximately $0.7 million.




Warranty
costs -The Company records 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 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, defects, repair costs,
and the volume and mix of boat sales. The estimate of warranty costs is
regularly analyzed and is adjusted based on the actual claims that occur.
Warranty expense as a percentage of net sales was 1.9 percent for 2004, 1.9
percent in 2003, and 1.7 percent for the year 2002. A 0.10 percentage point
increase in the estimated warranty expense as a percentage of net sales during
2004 would have increased selling, general and administrative expenses and
reduced operating income by approximately $0.3 million.






**Impact
of Recent Accounting Pronouncements**




In
December 2004, the FASB issued Statement of Financial Accounting Standard No.
132 (revised 2004) (“SFAS 132R”), “Employers’ Disclosures about Pensions and
Other Post-Retirement Benefits.” SFAS 132R does not change the measurement or
recognition provisions for defined benefit pensions and other post-retirement
benefits; however, it requires additional annual disclosures about assets,
obligations, cash flows, net periodic benefit cost and projected benefit payment
of those plans. The Company has adopted the provisions of SFAS 132R and
presented the disclosures in Note 9 to the consolidated financial
statements.




In March
2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments.” EITF 03-1 applies to investments accounted for under SFAS
No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit
Organizations.” In September 2004, the FASB delayed the accounting provisions of
EITF No. 03-01; however, qualitative and quantitative disclosures are effective
for the fiscal year ending December 31, 2004. The adoption of EITF 03-1 did not
have a material impact on the financial position, results of operations or
liquidity of the Company.




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






22





In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation,” (“SFAS 123”) and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values beginning with the first interim or annual period after June 15,
2005, with early adoption encouraged. The pro forma disclosures previously
permitted under SFAS 123 no longer will be an alternative to financial
statement recognition. The Company is required to adopt SFAS 123R in the
third quarter of fiscal 2005. Under SFAS 123R, the Company must determine
the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be
used at date of adoption. The transition methods include the modified
prospective application and the modified retrospective application. Under
the modified retrospective application, prior periods may be restated
either as of the beginning of the year of adoption or for all periods presented.
The modified prospective application requires that compensation expense be
recorded for all unvested stock options and restricted stock at the beginning of
the first quarter of adoption of SFAS 123R, while the modified
retrospective application would record compensation expense for all unvested
stock options and restricted stock beginning with the first period restated. The
Company is currently evaluating the impact of applying the various provisions of
SFAS 123R.


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




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






**Item
7A. Quantitative and Qualitative Disclosures About Market Risk**




Marine
Products does not utilize financial instruments for trading purposes and holds
no derivative financial instruments which could expose Marine Products to
significant market risk. Marine Products maintains an investment portfolio,
comprised of United States Government, corporate and municipal debt securities,
which is subject to interest rate risk exposure. This risk is managed through
conservative policies to invest in high-quality obligations. The Company has
been affected by the impact of lower interest rates on interest income from its
short-term investments. 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.





23




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, 2004 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, 2004.
  The
independent registered public accounting firm, Grant Thornton LLP, has audited
the consolidated financial statements as of and for the year ended December 31,
2004, 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 25.
 
 
 /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
 March 11,
2005
 
 
 
 
 
 
 
 24
 
 
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON INTERNAL CONTROL OVER
FINANCIAL REPORTING
   The
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 2004, that Marine Products Corporation (a Delaware Corporation)
maintained effective internal control over financial reporting as of December
31, 2004 based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).  Marine Products Corporation’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 opinions.
  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 Marine Products Corporation maintained
effective internal control over financial reporting as of December 31, 2004, is
fairly stated, in all material respects, based on criteria established in
Internal Control—Integrated Framework issued by the COSO.  Also in our
opinion, Marine Products Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
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 sheet of Marine
Products Corporation and subsidiaries as of December 31, 2004, and the related
consolidated statements of income, stockholders’ equity, and cash flows for the
year ended December 31, 2004 and our report dated March 11, 2005 expressed an
unqualified opinion on those financial statements.
  
 /s/ Grant
Thornton LLP
 
 Atlanta,
Georgia
  March 11,
2005




25




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




**CONSOLIDATED
      BALANCE SHEETS****MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES****(in
      thousands except share information)****December
      31,**
    
    **2004**
    
    **2003****ASSETS**Cash
      and cash equivalents
    
    $
    46,615
    
    $
    26,244Marketable
      securities
    
    
    132
    
    
    1,402Accounts
      receivable, less allowance for doubtful accounts of $60
      in
      2004 and $67 in 2003
    
    
    1,082
    
    
    3,970Inventories
    
    
    25,869
    
    
    21,770Income
      taxes receivable
    
    
    1,160
    
    
    1,073Deferred
      income taxes
    
    
    3,006
    
    
    2,265Prepaid
      expenses and other current assets
    
    
    876
    
    
    616Current
      assets
    
    
    78,740
    
    
    57,340Property,
      plant and equipment, net
    
    
    18,362
    
    
    17,761Goodwill
      and other intangibles, net
    
    
    3,778
    
    
    3,818Marketable
      securities
    
    
    6,202
    
    
    5,930Other
      assets
    
    
    2,652
    
    
    1,465Total
      assets
    
    $
    109,734
    
    $
    86,314**LIABILITIES
      AND STOCKHOLDERS’ EQUITY**Accounts
      payable
    
    $
    6,224
    
    $
    2,730Other
      accrued expenses
    
    
    10,527
    
    
    8,626Current
      liabilities
    
    
    16,751
    
    
    11,356Pension
      liabilities
    
    
    2,977
    
    
    2,233Deferred
      income taxes
    
    
    925
    
    
    1,160Other
      long-term liabilities
    
    
    1,709
    
    
    1,599Total
      liabilities
    
    
    22,362
    
    
    16,348Commitments
      and contingenciesCommon
      stock, $.10 par value, authorized - 50,000,000 shares,
      issued
      and outstanding - 38,942,501 shares in 2004,
      38,592,350 shares in 2003
    
    
    3,894
    
    
    3,859Capital
      in excess of par value
    
    
    34,239
    
    
    34,436Retained
      earnings
    
    
    52,042
    
    
    32,409Deferred
      compensation
    
    
    (1,899
    )
    
    (229
    )Accumulated
      other comprehensive (loss) income
    
    
    (904
    )
    
    (509
    )Total
      stockholders’ equity
    
    
    87,372
    
    
    69,966Total
      liabilities and stockholders’ equity
    
    $
    109,734
    
    $
    86,314




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




**





26








**CONSOLIDATED
      STATEMENTS OF INCOME****MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES****(in
      thousands except per share data)****Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002**Net
      sales
    
    $
    252,418
    
    $
    193,980
    
    $
    162,682Cost
      of goods sold
    
    
    186,832
    
    
    143,663
    
    
    125,282Gross
      profit
    
    
    65,586
    
    
    50,317
    
    
    37,400Selling,
      general and administrative expenses
    
    
    29,810
    
    
    23,015
    
    
    18,018Operating
      income
    
    
    35,776
    
    
    27,302
    
    
    19,382Interest
      income
    
    
    590
    
    
    501
    
    
    600**Income
      before income taxes**
    
    
    36,366
    
    
    27,803
    
    
    19,982Income
      tax provision
    
    
    12,623
    
    
    9,731
    
    
    7,593**Net
      income**
    
    $
    23,743
    
    $
    18,072
    
    $
    12,389**EARNINGS
      PER SHARE**Basic
    
    $
    0.62
    
    $
    0.47
    
    $
    0.32Diluted
    
    $
    0.58
    
    $
    0.45
    
    $
    0.31**Dividends
      paid per share**
    
    **$******
    ******0.11**
    
    **$******
    ******0.07**
    
    **$******
    ******0.03**




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





27










**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY****MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES****(in
      thousands)****Three
      Years Ended**
      **December
      31, 2004**
    
    **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, 2001
    
    
    
    
    
    25,538
    
    $
    2,554
    
    $
    38,016
    
    $
    6,055
    
    $
    (280
    )
    $
    —
    
    $
    46,345Stock
      issued for stock incentive plans, net
    
    
    
    
    
    238
    
    
    24
    
    
    618
    
    
    
    
    
    (54
    )
    
    
    
    
    588Stock
      purchased and retired
    
    
    
    
    
    (141
    )
    
    (14
    )
    
    (1,208
    )
    
    
    
    
    
    
    
    
    
    
    (1,222
    )Net
      income
    
    $
    12,389
    
    
    
    
    
    
    
    
    
    
    
    12,389
    
    
    
    
    
    
    
    
    12,389Minimum
      pension liability adjustment,net
      of taxes of $11
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    (18
    )Unrealized
      (loss) gain on securities, net of taxes of $74
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121
    
    
    121Comprehensive
      income
    
    $
    12,492Dividends
      declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,370
    )
    
    
    
    
    
    
    
    (1,370
    )Effect
      of stock splits
    
    
    
    
    
    12,888
    
    
    1,288
    
    
    (1,288
    )
    
    
    
    
    
    
    
    
    
    
    —Balance,
      December 31, 2002
    
    
    
    
    
    38,523
    
    
    3,852
    
    
    36,138
    
    
    17,074
    
    
    (334
    )
    
    103
    
    
    56,833Stock
      issued for stock incentive plans, net
    
    
    
    
    
    257
    
    
    26
    
    
    550
    
    
    
    
    
    105
    
    
    
    
    
    681Stock
      purchased and retired
    
    
    
    
    
    (226
    )
    
    (23
    )
    
    (2,248
    )
    
    
    
    
    
    
    
    
    
    
    (2,271
    )Net
      income
    
    $
    18,072
    
    
    
    
    
    
    
    
    
    
    
    18,072
    
    
    
    
    
    
    
    
    18,072Minimum
      pension liability adjustment, net of taxes of $288
    
    
    (534
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (534
    )
    
    (534
    )Unrealized
      (loss) gain on securities,net
      of taxes and reclassification adjustments
    
    
    (78
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78
    )
    
    (78
    )Comprehensive
      income
    
    $
    17,460Dividends
      declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,737
    )
    
    
    
    
    
    
    
    (2,737
    )Effect
      of stock splits
    
    
    
    
    
    38
    
    
    4
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    —Balance,
      December 31, 2003
    
    
    
    
    
    38,592
    
    
    3,859
    
    
    34,436
    
    
    32,409
    
    
    (229
    )
    
    (509
    )
    
    69,966Stock
      issued for stock incentive plans, net
    
    
    
    
    
    456
    
    
    46
    
    
    3,728
    
    
    
    
    
    (1,670
    )
    
    
    
    
    2,104Stock
      purchased and retired
    
    
    
    
    
    (244
    )
    
    (24
    )
    
    (3,912
    )
    
    
    
    
    
    
    
    
    
    
    (3,936
    )Net
      income
    
    $
    23,743
    
    
    
    
    
    
    
    
    
    
    
    23,743
    
    
    
    
    
    
    
    
    23,743Minimum
      pension liability adjustment,net
      of taxes of $162
    
    
    (301
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301
    )
    
    (301
    )Unrealized
      (loss) gain on securities,net
      of taxes and reclassification adjustments
    
    
    (94
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    (94
    )Comprehensive
      income
    
    $
    23,348Dividends
      declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,110
    )
    
    
    
    
    
    
    
    (4,110
    )Effect
      of stock splits
    
    
    
    
    
    139
    
    
    13
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    —Balance,
      December 31, 2004
    
    
    
    
    
    38,943
    
    $
    3,894
    
    $
    34,239
    
    $
    52,042
    
    $
    (1,899
    )
    $
    (904
    )
    $
    87,372




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





28










**CONSOLIDATED
      STATEMENTS OF CASH FLOWS****MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES****(in
      thousands)****Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002****OPERATING
      ACTIVITIES**Net
      income
    
    $
    23,743
    
    $
    18,072
    
    $
    12,389Non-cash
      charges (credits) to earnings:Depreciation,
      amortization and other non-cash charges
    
    
    2,532
    
    
    2,306
    
    
    2,079Deferred
      income tax (benefit) provision
    
    
    (784
    )
    
    1,029
    
    
    (247
    )(Increase)
      decrease in assets:Accounts
      receivable
    
    
    2,888
    
    
    (2,499
    )
    
    (293
    )Inventories
    
    
    (4,099
    )
    
    (1,085
    )
    
    (6,207
    )Prepaid
      expenses and other current assets
    
    
    (260
    )
    
    1,007
    
    
    (283
    )Income
      taxes receivable
    
    
    787
    
    
    (1,073
    )
    
    831Other
      non-current assets
    
    
    (1,187
    )
    
    (679
    )
    
    (292
    )Increase
      (decrease) in liabilities:Accounts
      payable
    
    
    3,494
    
    
    (684
    )
    
    985Income
      taxes payable
    
    
    —
    
    
    (1,066
    )
    
    1,066Other
      accrued expenses
    
    
    1,901
    
    
    1,089
    
    
    1,668Other
      long-term liabilities
    
    
    390
    
    
    1,411
    
    
    —Net
      cash provided by operating activities
    
    
    29,405
    
    
    17,828
    
    
    11,696**INVESTING
      ACTIVITIES**Capital
      expenditures
    
    
    (2,838
    )
    
    (3,707
    )
    
    (3,800
    )Sale
      (purchase) of marketable securities
    
    
    914
    
    
    (725
    )
    
    6,660Net
      cash (used for) provided by investing activities
    
    
    (1,924
    )
    
    (4,432
    )
    
    2,860**FINANCING
      ACTIVITIES**Payment
      of dividends
    
    
    (4,110
    )
    
    (2,737
    )
    
    (1,370
    )Cash
      paid for common stock purchased and retired
    
    
    (3,768
    )
    
    (2,271
    )
    
    (1,222
    )Proceeds
      received upon exercise of stock options
    
    
    768
    
    
    576
    
    
    363Net
      cash used for financing activities
    
    
    (7,110
    )
    
    (4,432
    )
    
    (2,229
    )Net
      increase in cash and cash equivalents
    
    
    20,371
    
    
    8,964
    
    
    12,327Cash
      and cash equivalents at beginning of year
    
    
    26,244
    
    
    17,280
    
    
    4,953Cash
      and cash equivalents at end of year
    
    $
    46,615
    
    $
    26,244
    
    $
    17,280




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





29


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




**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, product model or the Company’s
international operations.




*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.




*Capital
Stock* — Marine
Products is authorized to issue 50 million 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. **




*Dividend* — The
Board of Directors, at their quarterly meeting on January 25, 2005, approved
a 50 percent increase in the quarterly cash dividend, from $0.027 to $0.040
adjusted for the split. The increased quarterly dividend will be payable March
10, 2005 to stockholders of record at the close of business on February 10,
2005.




*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 and warranty
costs.




*Sales
Recognition* — Marine
Products recognizes sales when a fully executed agreement exists, prices are
established, products are delivered to the dealer and collectibility is
reasonably assured.




*Shipping
and Handling Charges* — The
shipping and handling of the Company’s products to dealers is handled through a
combination of a third-party marine transport service 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 the 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, 2004 and
2003, the Company had approximately $327,000 and $320,000 in prepaid expenses
related to the unamortized product brochure costs. Advertising expense totaled
approximately $2,520,000 in 2004, $2,785,000 in 2003 and $2,086,000 in 2002.




*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.





30


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




**


*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 with the exception of the reclassification adjustment in 2004 mentioned
below. Realized gains on marketable securities totaled $148,127 in 2004,
$87,738 in 2003 and realized losses totaled $23,400 in 2002. Of the total gain
realized, reclassification from other comprehensive income totaled approximately
$165,000 in 2004 and $168,000 in 2003. The reclassification in 2004 was a result
of the securities that are held in a Supplemental Retirement Plan being
classified as trading. This reclassification of securities from
available-for-sale to trading was due to a change in the frequency of
participant directed investment choices.




The fair
value and the unrealized gain (loss) of the available for sale securities are as
follows:







**December
      31,**
    
    **2004**
    
    **2003****Type
      of Securities**
    
    **Fair**
      **Value**
    
    **Unrealized**
      **Gain
      (Loss)**
    
    **Fair**
      **Value**
    
    **Unrealized**
      **Gain
      (Loss)**U.S.
      Treasury Notes
    
    $
    1,398,000
    
    $
    (9,800
    )
    $
    2,188,000
    
    $
    4,200Federal
      Agency Obligations
    
    
    528,000
    
    
    1,000
    
    
    135,000
    
    
    (1,500
    )Mortgage
      Backed Obligations
    
    
    100,000
    
    
    (1,000
    )
    
    —
    
    
    —Corporate
      Backed Obligations
    
    
    4,057,000
    
    
    (57,000
    )
    
    3,012,000
    
    
    (6,200
    )Municipal
      Obligations
    
    
    251,000
    
    
    (3,000
    )
    
    1,997,000
    
    
    5,300




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 2005,
approximately $5,553,100 between 2006 and 2010, $332,100 between 2011 and 2015,
$316,400 in 2016 and thereafter.




*Accounts
Receivable* —
Accounts receivable are carried at the amount owed by customers less an
allowance for doubtful accounts. The allowance for doubtful accounts is
estimated based upon historical write-off percentages, known problem accounts
and current economic conditions. Accounts are written-off against the allowance
for doubtful accounts when the Company determines that amounts are
uncollectible.




*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.





31


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




*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, 2004 and 2003. Pursuant to the adoption of
Statement of Financial Accounting Standard (“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 during the fourth
quarters of 2004 and 2003. Based upon the results of these analyses, the Company
has concluded that no impairment of its goodwill has occurred. Trade names are
amortized on a straight-line basis over the periods of their estimated useful
lives, as straight-line best estimates the ratio that current sales bear to the
total of current and anticipated sales, based on the estimated useful lives.
Trade names are reviewed for impairment when indicators of impairment exist.




The
carrying amount and accumulated amortization for trade names are as follows:




**December
      31,**
    
    **2004**
    
    **2003**Trade
      names
    
    $
    600,000
    
    $
    600,000Less:
      accumulated amortization
    
    
    (130,000
    )
    
    (90,000
    )$
    470,000
    
    $
    510,000




Amortization
of trade names was approximately $40,000 each in 2004, 2003 and 2002. Estimated
amortization expense for trade names is $40,000 for each of the five succeeding
years from 2005 to 2009.




*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, 2004 and 2003 is as follows:




**(in
      thousands)**
    
    **2004**
    
    **2003**Balance
      at beginning of year
    
    $
    2,846
    
    $
    1,944Less:
      Payments made during the year
    
    
    (3,839
    )
    
    (2,744
    )Add:
      Warranty accruals during the year
    
    
    4,315
    
    
    3,344Changes
      to warranty accruals issued in prior years
    
    
    474
    
    
    302Balance
      at end of year
    
    $
    3,796
    
    $
    2,846




Changes
in warranties issued in prior years are due to updated information about the
frequency and size of claims incurred related to prior year sales.




*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 $1,729,000 in 2004, $1,075,000 in 2003 and
$1,605,000 in 2002.




*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:







32


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




**2004**
    
    **2003**
    
    **2002**Basic
    
    
    38,452,704
    
    
    38,079,651
    
    
    38,129,745Dilutive
      effect of stock options and restricted shares
    
    
    2,318,547
    
    
    2,212,434
    
    
    2,185,881Diluted
    
    
    40,771,251
    
    
    40,292,085
    
    
    40,315,626






*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 and 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
December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
132 (revised 2004) (“SFAS 132R”), “Employers’ Disclosures about Pensions and
Other Post-Retirement Benefits.” SFAS 132R does not change the measurement or
recognition provisions for defined benefit pensions and other post-retirement
benefits; however, it requires additional annual disclosures about assets,
obligations, cash flows, net periodic benefit cost and projected benefit payment
of those plans. The Company has adopted the provisions of SFAS 132R and
presented the disclosures in Note 9 to these consolidated financial
statements.


In March
2004, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No.
03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to
Certain Investments.” EITF 03-1 applies to investments accounted for under SFAS
No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit
Organizations.” In September 2004, the FASB delayed the accounting provisions of
EITF No. 03-01; however, qualitative and quantitative disclosures are effective
for the fiscal year ending December 31, 2004. The adoption of EITF 03-1 did not
have a material impact on the financial position, results of operations or
liquidity of the Company.




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





In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their fair
values beginning with the first interim or annual period that begins after
June 15, 2005, with early adoption encouraged. The pro forma disclosures
previously permitted under SFAS 123 will no longer be an alternative to
financial statement recognition. The Company is required to adopt SFAS 123R
in the third quarter of fiscal 2005. Under SFAS 123R, the Company must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption. The transition methods include modified
prospective application and modified retrospective application. Under the
modified retrospective application, prior periods may be restated either as of
the beginning of the year of adoption or for all periods presented. The modified
prospective application requires that compensation expense be recorded for all
unvested stock options and restricted stock at the beginning of the first
quarter of adoption of SFAS 123R, while the modified retrospective
application would record compensation expense for all unvested stock options and
restricted stock beginning with the first period restated. The Company is
currently evaluating the impact of applying the various provisions of SFAS
123R.







33





**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**


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




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




*Stock-Based
Compensation* — Marine
Products accounts for its stock incentive plan using the intrinsic value method
prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting
for Stock Issued to Employees.” Marine Products records deferred compensation
related to the restricted stock grants based on the fair market value of the
shares at the issue date and amortizes such amounts ratably over the vesting
period of the shares. Marine Products recorded amortization of deferred
compensation related to these restricted stock grants totaling approximately
$294,000 in 2004, $104,000 in 2003 and $226,000 in 2002.




If Marine
Products had accounted for the stock incentives in accordance with the
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” the total
fair value of awards granted under the plan would be amortized over the vesting
period of the awards, and Marine Products’ reported net income and diluted net
income per share would have been as follows:




**Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002****(in
      thousands*****)***
      ******Net
      income (as reported)
    
    $
    23,743
    
    $
    18,072
    
    $
    12,389Add:
      Stock-based employee compensation expense included
      in
      reported net income, net of related tax effect
    
    
    191
    
    
    68
    
    
    140Deduct:
      Total stock-based employee compensation expense
      determined
      under fair value based method for all awards,
      net
      of related tax effect
    
    
    (550
    )
    
    (405
    )
    
    (354
    )Pro
      forma net income
    
    $
    23,384
    
    $
    17,735
    
    $
    12,175Pro
      forma income per share would have been as follows:Basic
      — as reported
    
    $
    0.62
    
    $
    0.47
    
    $
    0.33Basic
      — pro forma
    
    $
    0.61
    
    $
    0.47
    
    $
    0.32Diluted
      — as reported
    
    $
    0.58
    
    $
    0.45
    
    $
    0.31Diluted
      — pro forma
    
    $
    0.57
    
    $
    0.44
    
    $
    0.30












34


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




The
Company has computed for pro forma disclosure purposes the value of all options
granted during 2004, 2003 and 2002 using the Black-Scholes option pricing model
as prescribed by SFAS No. 123 using the following weighted average assumptions:




**2004**
    
    **2003**
    
    **2002**Risk
      free interest rate
    
    
    3.5
    %
    
    1.1
    %
    
    2.9
    %Expected
      dividend yield
    
    
    0.9
    %
    
    1.3
    %
    
    1.0
    %Expected
      lives
    
    
    7
      years
    
    
    7
      years
    
    
    7
      yearsExpected
      volatility
    
    
    47-52
    %
    
    33
    %
    
    39
    %




The total
fair value of options granted to Marine Products employees during each of the
years was computed as follows:




**Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002****(in
      thousands)**Total
    
    $
    422
    
    $
    1,838
    
    $
    1,389





*Stock
Split* — The
Board of Directors, at their quarterly meeting on January 25, 2005, authorized a
three-for-two stock split by the issuance on March 10, 2005 of one additional
common share for every two common shares held of record at February 10, 2005.
Accordingly, the par value of additional shares issued will be adjusted between
common stock and capital in excess of par value, and fractional shares resulting
from the stock split will be settled in cash. All share and per share data
appearing in the consolidated financial statements and related footnotes have
been retroactively adjusted for this split and the stock split effective March
10, 2004.






**NOTE
2: INVENTORIES**




Inventories
consist of the following:




**December
      31,**
    
    **2004**
    
    **2003****(in
      thousands)**Raw
      materials
    
    $
    12,768
    
    $
    9,485Work
      in process
    
    
    6,721
    
    
    5,889Finished
      goods
    
    
    6,380
    
    
    6,396Total
      inventories
    
    $
    25,869
    
    $
    21,770






**NOTE
3: 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**
    
    **2004**
    
    **2003****(in
      thousands)**Land
    
    
    N/A
    
    $
    495
    
    $
    495Buildings
    
    
    20-39
    
    
    16,010
    
    
    14,711Operating
      equipment and property
    
    
    3-15
    
    
    7,960
    
    
    7,417Furniture
      and fixtures
    
    
    5-7
    
    
    1,130
    
    
    1,063Vehicles
    
    
    3-5
    
    
    5,469
    
    
    4,876Gross
      property, plant and equipment
    
    
    
    
    
    31,064
    
    
    28,562Less:
      accumulated depreciation
    
    
    
    
    
    12,702
    
    
    10,801Net
      property, plant and equipment
    
    
    
    
    $
    18,362
    
    $
    17,761










35


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




Depreciation
expense was $2,237,000 in 2004, $2,162,000 in 2003 and $1,814,000 in 2002.
During 2002, the Company entered into and completed a like kind exchange for
operating equipment. The equipment that was traded in had a net book value of
$61,000 with a fair market value of $680,000. In addition, the Company paid cash
totaling approximately $1,776,000 representing the difference between the values
of the respective non-monetary assets. The fair market value of the equipment
purchased was $2,456,000. The Company recorded the new asset at $1,837,000 with
no gain or loss being recognized on the transaction. The consolidated statement
of cash flows for the year ended December 31, 2002 excludes the value of the
operating equipment traded in.






**NOTE
4: 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 $546,000 in 2004, $496,000 in 2003 and $588,000 in
2002. The Company’s directors are also directors of RPC and all of the executive
officers with the exception of Mr. Lane are employees of both the Company and
RPC. The Company paid $171,000 in 2003 and $332,000 in 2002 to a division of RPC
for the purchase, installation and service of overhead cranes.




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. The amounts transferred as
settlements from RPC to the Company totaled approximately $19,000 in 2004, $0 in
2003 and $140,000 in 2002.







**NOTE
5: OTHER ACCRUED EXPENSES**




Other
accrued expenses consist of the following:




**December
      31,**
    
    **2004**
    
    **2003****(in
      thousands)**Accrued
      payroll and related expenses
    
    $
    2,334
    
    $
    2,280Accrued
      sales incentives and discounts
    
    
    3,058
    
    
    2,745Accrued
      warranty costs
    
    
    3,796
    
    
    2,846Other
    
    
    1,339
    
    
    755Total
      other accrued expenses
    
    $
    10,527
    
    $
    8,626










36


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




**N** **OTE
6: INCOME TAXES**




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




**Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002****(in
      thousands)**Current
      provision:Federal
    
    $
    12,574
    
    $
    8,295
    
    $
    7,452State
    
    
    833
    
    
    407
    
    
    388Deferred
      (benefit) provision:Federal
    
    
    (678
    )
    
    1,000
    
    
    (227
    )State
    
    
    (106
    )
    
    29
    
    
    (20
    )Total
      income tax provision
    
    $
    12,623
    
    $
    9,731
    
    $
    7,593






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




**Years
      ended December 31,**
    
    **2004**
    
    **2003**
    
    **2002**Federal
      statutory rate
    
    
    35.0
    %
    
    35.0
    %
    
    35.0
    %State
      income taxes
    
    
    2.0
    
    
    2.0
    
    
    1.9Other
    
    
    (2.3
    )
    
    (2.0
    )
    
    1.1Effective
      tax rate
    
    
    34.7
    %
    
    35.0
    %
    
    38.0
    %




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




**December
      31,**
    
    **2004**
    
    **2003****(in
      thousands)**Deferred
      tax assets:Warranty
      costs
    
    $
    1,403
    
    $
    814Sales
      incentives and discounts
    
    
    704
    
    
    557Self-insurance
      expense
    
    
    61
    
    
    149Stock-based
      compensation
    
    
    254
    
    
    250Pension
      expense
    
    
    1,069
    
    
    452Advertising
      expense
    
    
    241
    
    
    138All
      others
    
    
    308
    
    
    285Total
      deferred tax assets
    
    
    4,040
    
    
    2,645Deferred
      tax liabilities:Depreciation
      expense
    
    
    (1,959
    )
    
    (1,456
    )All
      others
    
    
    —
    
    
    (84
    )Total
      deferred tax liabilities
    
    
    (1,959
    )
    
    (1,540
    )Net
      deferred tax assets
    
    $
    2,081
    
    $
    1,105




Total
income tax payments, net of refunds, were $12,608,000 in 2004, $9,751,000 in
2003 and $5,455,000 in 2002. 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.







37





**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




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




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




**Minimum**
      **Pension**
      **Liability**
    
    **Unrealized**
      **Gain
      (Loss) on**
      **Securities**
    
    **Total****(in
      thousands)**Balance
      at December 31, 2002
    
    $
    (18
    )
    $
    121
    
    $
    103Change
      during 2003:Before-tax
      amount
    
    
    (822
    )
    
    (287
    )
    
    (1,109
    )Tax
      benefit
    
    
    288
    
    
    100
    
    
    388Reclassification
      adjustment, net of taxes
    
    
    —
    
    
    109
    
    
    109Total
      activity in 2003
    
    
    (534
    )
    
    (78
    )
    
    (612
    )Balance
      at December 31, 2003
    
    $
    (552
    )
    $
    43
    
    $
    (509
    )Change
      during 2004:Before-tax
      amount
    
    
    (463
    )
    
    19
    
    
    (444
    )Tax
      benefit
    
    
    162
    
    
    (6
    )
    
    156Reclassification
      adjustment, net of taxes
    
    
    —
    
    
    (107
    )
    
    (107
    )Total
      activity in 2004
    
    
    (301
    )
    
    (94
    )
    
    (395
    )Balance
      at December 31, 2004
    
    $
    (853
    )
    $
    (51
    )
    $
    (904
    )






**NOTE
8: COMMITMENTS AND CONTINGENCIES**




*Lawsuits* — The
Company is a defendant in some 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. As of December 31, 2004, the maximum
repurchase obligation outstanding under these agreements which expire in 2005
and 2006 totaled approximately $3,500,000. The Company has recorded the
estimated fair value of this guarantee; at December 31, 2004, 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
$879,000. A liability equal to the estimated present value of the remaining
lease obligation totaling $150,000 has been recorded and is included in other
long-term liabilities on the consolidated balance sheet.





38


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




*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. As of
December 31, 2004 and 2003, other long-term liabilities consist primarily of the
Company’s estimated liabilities for the probable assessments payable.
  *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 amortization and certain allocated corporate
expenses) in addition to a base salary. The expense under these agreements
totaled approximately $9,997,000 in 2004, $7,240,000 in 2003, and $5,195,000 in
2002, and is included in selling, general and administrative expenses in the
accompanying consolidated statements of income.


**NOTE
9: 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. In the first quarter of 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 Supplemental Executive Retirement Plan (“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 $122,000 in 2004, $126,000 in 2003 and 2002.




Beginning
late in 2002, the Company began permitting selected highly compensated employees
to defer a portion of their compensation into the non-qualified SERP. The SERP
assets are marked to market and as of December 31, 2004 and 2003 totaled
approximately $1,949,000 and $990,000. The assets are reported in other assets
on the balance sheet and changes related to the fair value of assets are
included in selling, general and administrative expenses on the consolidated
statement of income for 2004. The SERP deferrals and the contributions are
recorded on the balance sheet in pension liabilities with any change in the fair
value of the liabilities recorded as compensation cost in the statement of
income.


The
following table sets forth the funded status of the retirement income plan and
the amounts recognized in Marine Products’ consolidated balance sheets:




**December
      31,**
    
    **2004**
    
    **2003****(in
      thousands)**CHANGE
      IN BENEFIT OBLIGATION:Benefit
      obligation at beginning of year
    
    $
    3,703
    
    $
    346Service
      cost
    
    
    —
    
    
    —Interest
      cost
    
    
    240
    
    
    22Actuarial
      loss
    
    
    515
    
    
    23Allocation
      of prior service liabilities
    
    
    —
    
    
    3,314Benefits
      paid
    
    
    (55
    )
    
    (2
    )Benefit
      obligation at end of year
    
    $
    4,403
    
    $
    3,703CHANGE
      IN PLAN ASSETS:Fair
      value of plan assets at beginning of year
    
    $
    2,604
    
    $
    56Actual
      return on plan assets
    
    
    198
    
    
    8Allocation
      of plan assets
    
    
    —
    
    
    2,517Employer
      contribution
    
    
    631
    
    
    25Benefits
      paid
    
    
    (55
    )
    
    (2
    )Fair
      value of plan assets at end of year
    
    $
    3,378
    
    $
    2,604Funded
      status
    
    $
    (1,025
    )
    $
    (1,099
    )Unrecognized
      net loss
    
    
    1,313
    
    
    851Net
      prepaid (accrued) benefit cost
    
    $
    288
    
    $
    (248
    )










39


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




The
accumulated benefit obligation for the defined benefit pension plan at December
31, 2004 and 2003 have been disclosed above. The Company uses a December 31
measurement date for its qualified plan.




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 $631,000 in 2004, $25,000 in 2003 and $56,174
in 2002. Following the spin-off of the Company in 2001, RPC has charged the
Company for, and the Company has been obligated to pay, its allocable share of
pension costs and the associated funding obligation related to the prior service
liabilities of Chaparral employees. Effective December 2003, the related prior
service liabilities totaling $3,314,000 and pension assets totaling $2,517,000
were transferred within the multiple employer plan by RPC to the
Company.




Pursuant
to the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” the
Company recorded pre-tax minimum pension liability adjustments of $462,000 in
2004 and $822,000 in 2003. As there were no previously unrecognized prior
service costs as of December 31, 2004 and 2003, the full amount of the
adjustments, net of related deferred tax benefit, are reflected as a reduction
to stockholders’ equity.




Amounts
recognized in the consolidated balance sheets and reflected as pension
liabilities consist of:





**December
      31,**
    
    **2004**
    
    **2003****(in
      thousands)**Net
      (prepaid) accrued benefit cost
    
    $
    (288
    )
    $
    248Minimum
      pension liability
    
    
    1,313
    
    
    851SERP
      employer contributions
    
    
    206
    
    
    136SERP
      employee deferrals
    
    
    1,746
    
    
    998Net
      amount recognized
    
    $
    2,977
    
    $
    2,233




The
components of net periodic benefit cost are summarized as follows:




**Years
      ended December 31,**
    
    **2004**
    
    **2003****(in
      thousands)**Service
      cost for benefits earned during the period
    
    $
    —
    
    $
    —Interest
      cost on projected benefit obligation
    
    
    240
    
    
    22Expected
      return on plan assets
    
    
    (231
    )
    
    (9
    )Amortization
      of net loss
    
    
    86
    
    
    —Net
      periodic benefit cost
    
    $
    95
    
    $
    13




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




**December
      31,**
    
    **2004**
    
    **2003**PROJECTED
      BENEFIT OBLIGATION:Discount
      rate
    
    
    5.750
    %
    
    6.250
    %Rate
      of compensation increase
    
    
    N/A
    
    
    N/ANET
      BENEFIT COST:Discount
      rate
    
    
    6.250
    %
    
    6.875
    %Expected
      return on plan assets
    
    
    8.000
    %
    
    8.000
    %Rate
      of compensation increase
    
    
    N/A
    
    
    N/A









40


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




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, 2004 and 2003, the Plan’s assets were comprised of listed common
stocks and U.S. Government and corporate securities. The plan’s weighted average
asset allocation at December 31, 2004 and 2003 by asset category along with the
target allocation for 2005 are as follows:




**Asset
      Category**
    **Target**
      **Allocation**
      **for
      2005**
    
    **Percentage
      of**
      **Plan
      Assets as of**
      **December
      31,**
      **2004**
    
    **Percentage
      of**
      **Plan
      Assets as of**
      **December
      31,**
      **2003**Equity
      Securities
    53.0
    %
    51.2
    %
    53.2
    %Debt
      Securities — Core Fixed Income
    25.0
    
    29.5
    
    41.4Tactical — Fund of Equity and Debt
      Securities
    5.0
    
    2.7
    
    0.0Real
      Estate
    5.0
    
    5.1
    
    0.0Other
    12.0
    
    11.5
    
    5.4Total
    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. 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 market 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 $300,000 to the
pension plan in 2005.




The
Company estimates that the future benefits payable for the defined benefit plan
over the next ten years are as follows: $80,000 in 2005, $97,000 in 2006,
$109,000 in 2007, $199,000 in 2008, $213,000 in 2009 and $1,222,000 between
2010-2014.




*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 six
months 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 contributed to the 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 $149,000 in 2004,
$147,000 in 2003 and $136,000 in 2002.




*Stock
Incentive Plan* — During
2001, Marine Products adopted a 10 year Employee Stock Incentive Plan (“2001
Plan”) under which 3,000,000 shares of common stock had been reserved for
issuance to Marine Products employees. On January 27, 2004, Marine Products
adopted a new 10 year Employee Stock Incentive Plan (“2004 Plan”) under which
2,250,000 shares of common stock have been reserved for issuance. Both 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, 2004, 298,259 shares were available for grants under the 2001 Plan
and 2,024,250 shares were available for grant under the 2004 Plan. All grants in
2004 were made under the 2004 Plan.





41


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




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.




Transactions
involving the Marine Products stock options were as follows:




**Total
      Options Outstanding**
    
    **Exercisable
      Options****Shares**
    
    **Weighted**
      **Average**
      **Exercise**
      **Price**
    
    **Shares**
    
    **Weighted**
      **Average**
      **Exercise**
      **Price**Outstanding
      December 31, 2001
    
    
    2,484,144
    
    $
    0.95
    
    
    1,313,271
    
    $
    0.75Granted
    
    
    875,250
    
    
    2.67Canceled
    
    
    (44,888
    )
    
    1.73Exercised
    
    
    (426,502
    )
    
    0.85Outstanding
      December 31, 2002
    
    
    2,888,004
    
    $
    1.47
    
    
    1,298,622
    
    $
    0.82Granted
    
    
    760,500
    
    
    4.61Canceled
    
    
    (4,050
    )
    
    1.71Exercised
    
    
    (576,943
    )
    
    1.00Outstanding
      December 31, 2003
    
    
    3,067,511
    
    $
    2.34
    
    
    1,269,260
    
    $
    1.17Granted
    
    
    72,000
    
    
    12.47Canceled
    
    
    (46,950
    )
    
    4.47Exercised
    
    
    (565,047
    )
    
    1.65Outstanding
      December 31, 2004
    
    
    2,527,514
    
    $
    2.75
    
    
    1,209,627
    
    $
    1.55




Options
exercised during 2004 include transactions that involved exchange of shares and
cash. The fair value of shares tendered to exercise employee stock options
totaled approximately $168,000 and has been excluded from the consolidated
statements of cash flows. As of December 31, 2004, the options outstanding and
the exercise prices together with the weighted average remaining contractual
life are as follows:







**Number
      of Options**
    ****
    **Weighted
      Average**
      **Exercise
      Prices**
    
    **Weighted**
      **Average**
      **Remaining****Exercise
      Prices**
    ****
    **Total**
    ****
    **Execisable**
    ****
    **Total**
    ****
    **Exercisable**
    ****
    **Contractual Life**$0.39
    
    
    151,865
    
    
    151,865
    
    $
    0.39
    
    $
    0.39
    
    
    1.1
      years$0.66
    
    
    83,537
    
    
    83,537
    
    
    0.66
    
    
    0.66
    
    
    2.1
      years$1.12
    
    
    242,975
    
    
    242,975
    
    
    1.12
    
    
    1.12
    
    
    3.1
      years$0.61
    
    
    326,511
    
    
    326,511
    
    
    0.61
    
    
    0.61
    
    
    4.1
      years$1.71
    
    
    283,800
    
    
    123,150
    
    
    1.71
    
    
    1.71
    
    
    6.3
      years$2.67
    
    
    670,826
    
    
    118,229
    
    
    2.67
    
    
    2.67
    
    
    7.1
      years$4.54
      - 4.99
    
    
    699,750
    
    
    163,360
    
    
    4.61
    
    
    4.66
    
    
    7.3
      years$12.47
    
    
    68,250
    
    
    —
    
    
    12.47
    
    
    —
    
    
    9.3
      years2,527,514
    
    
    1,209,627
    
    $
    2.75
    
    $
    1.55
    
    
    5.8
      years









42


**Notes
to Consolidated Financial Statements**
 **Marine
Products Corporation and Subsidiaries**
 **Years
ended December 31, 2004, 2003 and 2002**




Restricted
Stock — Marine
Products has granted employees two forms of restricted stock; performance
restricted and time lapse restricted. 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. Time lapse restricted shares vest after
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 2004 issued time lapse restricted shares that
vest in 20 percent increments starting with the second anniversary of the grant,
over six years from the date of grant. During these years, grantees receive all
dividends declared and retain voting rights for the granted shares. Units
granted under these restricted stock programs totaled 157,500 in 2004; no units
were granted in 2003 and 2002. There were no units earned and issued under these
plans in 2004 and 2003; 72,900 were earned and issued in 2002. There were no
forfeiture of shares in 2004, 2003 and 2002. Compensation cost on restricted
shares is recorded at the fair market value on the date of issuance and
amortized ratably over the respective vesting periods. Total weighted average
grant date value of restricted stock granted, earned and issued totaled
approximately $1,964,000 in 2004, $0 in 2003 and $351,000 in 2002. As of
December 31, 2004, there were 405,074 shares of unvested restricted stock
outstanding. During 2004, 167,400 shares of restricted stock vested and were
released to the employees. During 2003 and 2002, no shares of restricted stock
vested. During 2004, the tax
benefit aggregating $874,000 for compensation tax deductions in excess of
compensation expense was credited to capital in excess of par value and has been
excluded from the consolidated statement of cash flows.




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 plans have lapsed. Upon termination of employment from the Company or,
in certain cases, termination of employment from RPC, shares with restrictions
must be returned to the Company.




**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, 2004 (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 24 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, 2004 and issued a report thereon which is included on page 25 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.





43







**PART
III**




**Item
10. Directors and Executive Officers of the Registrant**




Information
concerning directors and executive officers will be included in the Marine
Products Proxy Statement for its 2005 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 12 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 2005
Annual Meeting of Stockholders, in the section titled “Corporate Governance and
Board of Directors Compensation, Committees and Meetings.” 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, 2170 Piedmont Road, NE, Atlanta, Georgia
30324.




***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 2005 Annual Meeting of Stockholders, which is
incorporated herein by reference.




**Item
11. Executive Compensation**




Information
concerning executive compensation will be included in the Marine Products Proxy
Statement for its 2005 Annual Meeting of Stockholders, in the section titled
“Executive Compensation.” This information is incorporated herein by reference.




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




Information
concerning security ownership will be included in the Marine Products Proxy
Statement for its 2005 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 2005 Annual Meeting of Stockholders, which is incorporated
herein by reference.




**Item
13. Certain Relationships and Related Party Transactions**




Information
concerning certain relationships and related party transactions will be included
in the Marine Products Proxy Statement for its 2005 Annual Meeting of
Stockholders, in the sections titled, “Certain Relationships and Related Party
Transactions” and “Compensation Committee Interlocks and Insider Participation.”
This information is incorporated herein by reference.




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




Information
regarding principal accountant fees and services will be included in the section
titled, “Independent Public Accountants” in the Marine Products Proxy Statement
for its 2005 Annual Meeting of Stockholders. This information is incorporated
herein by reference.





44









**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.10.15
    Summary
      of compensation arrangements with the Directors.10.16
    Supplemental
      Retirement Plan.





45












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




**Exhibit
      Number**
    **Description**3.1
    Articles
      of Incorporation of Marine Products Corporation (incorporated herein by
      reference to Exhibit 3.1 to the Form 10 filed on February 13, 2001).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, 2001).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.10.15
    Summary
      of compensation arrangements with the Directors.10.16
    Supplemental
      Retirement Plan.21
    Subsidiaries
      of Marine Products Corporation23.1
    Consent
      of Grant Thornton LLP23.2
    Consent
      of Ernst & Young 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.





46







**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
      CorporationBy:
    /s/   Richard A.
      HubbellRichard A. HubbellPresident and Chief Executive
      Officer
      March 14, 2005







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
      14, 2005/s/
      Ben M. Palmer
      
      Ben
      M. Palmer
    Chief
      Financial Officer
      (Principal
      Financial and Accounting Officer)
    March
      14, 2005






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
      14, 2005








47







**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
    24Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial Reporting
    25Consolidated
      Balance Sheets as of December 31, 2004 and 2003
    26Consolidated
      Statements of Income for the three years ended December 31,
      2004
    27Consolidated
      Statements of Stockholders’ Equity for the three years ended December 31,
      2004
    28Consolidated
      Statements of Cash Flows for the three years ended December 31,
      2004
    29Notes
      to Consolidated Financial Statements
    30-43Report
      of Independent Registered Public Accounting Firm on Consolidated Financial
      Statements (for 2004)
    50Report
      of Independent Registered Public Accounting Firm on Consolidated Financial
      Statements (for 2003 and 2002)
    51**SCHEDULE**Schedule
      II — Valuation and Qualifying Accounts
    49




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.






48




**SCHEDULE
II—VALUATION AND QUALIFYING ACCOUNTS**




**MARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES****For
      the years ended December 31, 2004, 2003 and
  2002****Description**
    **Balance
      at**
      **Beginning**
      **of
      Period**
    **Charged
      to**
      **Costs
      and**
      **Expenses**
    **Net**
      **(Write-Offs)/**
      **Recoveries**
    **Balance**
      **at
      End of**
      **Period****(in
      thousands)**Year
      ended December 31, 2004
      Allowance
      for doubtful accounts
    $
      67
    $
      —
    $
      (7)
    $60Year
      ended December 31, 2003
      Allowance
      for doubtful accounts
    $
      67
    $
      —
    $
      —
    $67Year
      ended December 31, 2002
      Allowance
      for doubtful accounts
    $
      67
    $
      —
    $
      —
    $
      67







49






REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMON CONSOLIDATED FINANCIAL
STATEMENTS






Board of
Directors and Stockholders  of Marine
Products Corporation






We have
audited the accompanying consolidated balance sheet of Marine Products
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2004,
and the related consolidated statements of income, stockholders’ equity, and
cash flows for the year then ended.  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
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 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 audit provides 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 Marine Products Corporation
and subsidiaries as of December 31, 2004, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.




Our audit
was conducted for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole.  Schedule II for the year ended
December 31, 2004, listed in the Index, is presented for purposes of additional
analysis and is not a required part of the basic financial statements. 
This schedule has been subjected to the auditing procedures applied in the audit
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.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Marine Products
Corporation’s internal control over financial reporting as of December 31, 2004,
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 March 11, 2005 expressed an unqualified opinion.






/s/ Grant
Thornton LLP






Atlanta,
Georgia


March 11,
2005














50












REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Thre
Board of Directors and Stockholders


Marine
Products Corporation





We have
audited the accompanying consolidated balance sheet of Marine Products
Corporation and Subsidiaries as of December 31, 2003, and the related
consolidated statements of income, stockholders' equity and comprehensive income
and cash flows for each of the two years in the period ended December 31, 2003.
Our audits also included the financial statement schedule for each of the two
years in the period ended December 31, 2003, listed in the Index. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
 
 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 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 financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Marine Products
Corporation and Subsidiaries at December 31, 2003, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2003 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule for
each of the two years in the period ended December 31, 2003, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
   Atlanta,
      Georgia
    /s/
      Ernst & Young LLPFebruary
      27, 2004
 except
for the matter discussed in the last paragraph of Note 1 as to which the date is
March 11, 2005










51







**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 for shares held
      on February 10, 2005 and the stock split effective March 10,
      2004**2004**Net
      sales
    $61,830
    $64,775
    $63,129
    $62,684Gross
      profit
    15,723
    16,971
    17,117
    15,775Net
      income
    5,646
    6,396
    6,244
    5,457Earnings
      per share — basic(a)
    0.15
    0.17
    0.16
    0.14Earnings
      per share — diluted(a)
    0.14
    0.16
    0.15
    0.13**2003**Net
      sales
    $50,107
    $51,951
    $44,903
    $47,019Gross
      profit
    12,092
    13,551
    11,503
    13,171Net
      income
    4,194
    4,961
    4,459
    4,458Earnings
      per share — basic(a)
    0.11
    0.13
    0.12
    0.12Earnings
      per share — diluted(a)
    0.10
    0.12
    0.11
    0.11




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










52