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. A majority of these dealers finance their inventory through third-party floorplan lenders, who pay Marine Products generally within seven to 10 days after delivery of the products to the dealers.

The discussion on business and financial strategies of the Company set forth under the heading "Overview" in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2007 is incorporated herein by reference. There have been no significant changes in the strategies since year-end.

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, fuel costs, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions. We also consider trends related to certain key financial and other data, including our market share, unit sales of our products, average selling price per 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.

We reduced our production levels at various times during the nine months ended September 30, 2008 in response to our concerns about dealer and consumer demand for products in our industry, which resulted from continued problems in the housing market, high fuel prices and concern regarding a general economic slowdown. In the third quarter of 2008, our production levels were significantly lower than the levels during the third quarter of 2007. Despite significant cost reduction efforts, gross profit as a percentage of net sales declined significantly primarily due to manufacturing cost inefficiencies as a result of lower production levels. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be relatively strong during the quarter and an improved model mix among the Robalo sport fishing boats accounted for the increase in the average selling price per boat. Consistent with the overall reduction in demand for recreational products, including fiberglass boats, our unit backlog at the end of the quarter was approximately half of what it was at this time last year.

OUTLOOK

The discussion on the outlook for 2008 is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended December 31, 2007.

The weak dealer and customer demand that began three years ago accelerated during the third quarter of 2008. The same macroeconomic and industry-specific factors that have been issues for our business continued, and during the third quarter, retail boat sales were also affected by the credit crisis and turmoil in global financial markets. This crisis has made consumers more reluctant to buy large discretionary items such as pleasure boats. Also, the recent curtailment of consumer and business lending has made it difficult for consumers and dealers to secure financing for retail purchases and for inventory financing. The Company does not believe that there are any near-term catalysts which will improve the retail selling environment for our products, and as a result, we have continued to reduce production in order to manage dealer inventory levels. The tight credit markets have increased the cost and reduced the availability of floor plan credit to our dealers, and have caused some dealer order cancellations during the fourth quarter of 2008. This factor, along with order cancellations resulting from a continued weak retail selling environment and the recent notification of repurchase obligations resulting from dealer defaults, have required us to consolidate several plants in the fourth quarter, reduce production further from third quarter 2008 levels, and undertake additional workforce reductions. We anticipate that there will be some costs associated with these actions which are not expected to be material. In addition, the weak selling environment and dealer inventory levels may require us to implement additional sales incentive programs designed to sell inventory. Management will continue to monitor the risk of additional dealer defaults and resulting repurchase obligations.

The Company has started its 2009 model year, and recently held its annual dealer conference. While we are pleased with the dealer reaction to our redesigned Sunesta and SSi Wide Techs, and the new Chaparral 400 Premiere Sport Yacht, our dealers are concerned about retail demand for the foreseeable future. We anticipate that the Company will continue to experience the effect of reduced consumer demand for the remainder of 2008 and into at least early 2009, which will adversely affect net sales, net income, operating margins and cash flows.

                  MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

Key operating and financial statistics for the nine months ended September 30,
2008 and 2007 follow:

($ in thousands)                         Three months ended               Nine months ended
                                            September 30                    September 30
                                        2008            2007            2008            2007

Total number of boats sold                   610           1,167           3,130           4,189
Average gross selling price per
boat                                $       48.5     $      43.4     $     46.33     $      42.8
Net sales                           $     31,582     $    52,481     $   152,858     $   185,326
Percentage of cost of goods sold
to net sales                                83.8 %          78.5 %          80.6 %          78.3 %
Gross profit margin percent                 16.2 %          21.5 %          19.4 %          21.7 %
Percentage of selling, general and
administrative expenses to net sales        12.9 %          12.3 %          12.4 %          12.3 %
Operating income                    $      1,018     $     4,795     $    10,630     $    17,330
Warranty expense                    $        545     $     1,120     $     2,719     $     3,793

THREE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2007

Net sales for the three months ended September 30, 2008 decreased $20.1 million or 39.8 percent compared to the comparable period in 2007. The change in net sales was comprised of a 47.7 percent decrease in the number of boats sold partially offset by an 11.8 percent increase in average gross selling price per boat. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be relatively strong during the quarter, and accounted for the increase in the average selling price per boat, coupled with an improved model mix for the Robalo sport fishing boats. In the third quarter of 2008, sales outside of the United States accounted for approximately 27 percent of net sales compared to approximately 18 percent of net sales in the prior year.

Cost of goods sold for the three months ended September 30, 2008 was $26.5 million compared to $41.2 million for the comparable period in 2007, a decrease of $14.7 million or 35.8 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of manufacturing cost inefficiencies due to lower production volumes.

Selling, general and administrative expenses for the three months ended September 30, 2008 were $4.1 million compared to $6.5 million for the comparable period in 2007, a decrease of $2.4 million or 36.9 percent. The decrease in selling, general and administrative expenses was primarily due to the variable nature of many of these expenses, including incentive compensation, which declined as a percentage of sales consistent with lower sales and profitability, and warranty expense. Warranty expense was 1.7 percent of net sales for the three months ended September 30, 2008 compared to 2.1 percent in the prior year, primarily due to improved claims experience and our quality initiatives.

Operating income for the three months ended September 30, 2008 decreased $3.8 million or 78.8 percent compared to the comparable period in 2007. Operating income was lower primarily due to lower gross profit partially offset by a decrease in selling, general and administrative expenses.

Interest income was $0.6 million during the three months ended September 30, 2008 and 2007.

Income tax provision for the three months ended September 30, 2008 of $1.0 million was $1.2 million or 55.5 percent lower than the income tax provision of $2.2 million for the comparable period in 2007. The income tax provision reflects an effective tax rate of 58.3 percent, compared to 40.0 percent for the comparable period in the prior year. The increase in the effective rate was due primarily to recent unanticipated losses on non-qualified plan assets that are not deductible for tax purposes.

NINE MONTHS ENDED SEPTEMBER 30, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2007

Net sales for the nine months ended September 30, 2008 decreased $32.5 million or 17.5 percent compared to the comparable period in 2007. The change in net sales was comprised of a 25.3 percent decrease in the number of boats sold offset by an 8.2 percent increase in average gross selling price per boat. Sales of the new Chaparral Sunesta Wide Techs and Xtremes continued to be strong during the first nine months of 2008, and accounted for the increase in the average selling price per boat. The decrease in net sales in the domestic market was partially offset by strong growth outside of the United States due to the weakness of the U.S. dollar. For the first nine months of 2008, sales outside of the United States accounted for approximately 33 percent of net sales compared to approximately 24 percent of net sales for the prior year.

Cost of goods sold for the nine months ended September 30, 2008 was $123.3 million compared to $145.2 million for the comparable period in 2007, a decrease of $21.9 million or 15.1 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of manufacturing cost inefficiencies due to lower production volumes and the cost of our retail incentive program associated with boats already sold to dealers.

Selling, general and administrative expenses for the nine months ended September 30, 2008 were $19.0 million compared to $22.8 million for the comparable period in 2007, a decrease of $3.9 million or 16.9 percent. The decrease in selling, general and administrative expenses was primarily due to the variable nature of these expenses, including incentive compensation which is consistent with lower sales and profitability. Warranty expense was 1.8 percent of net sales for the nine months ended September 30, 2008 compared to 2.0 percent in the prior year, primarily due to improved claims experience and our quality initiatives.

Operating income for the nine months ended September 30, 2008 decreased $6.7 million or 38.7 percent compared to the comparable period in 2007. Operating income was lower primarily due to lower gross profit partially offset by lower selling, general and administrative expenses.

Interest income was $1.8 million during the nine months ended September 30, 2008 compared to $1.9 million for the comparable period in 2007. This decrease resulted primarily from lower returns on our short term maturities due to an increase, which began in the second quarter of 2007, in balances invested in municipal bonds, which carry a lower nominal yield.

Income tax provision for the nine months ended September 30, 2008 of $3.7 million was $3.1 million or 45.6 percent lower than the income tax provision of $6.9 million for the comparable period in 2007. The income tax provision reflects an effective tax rate of 30.0 percent, compared to 35.6 percent for the comparable period in the prior year. The decrease in the effective rate was due primarily to the impact of tax credits.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company's cash and cash equivalents at September 30, 2008 were $5.0
million. The following table sets forth the historical cash flows for:

  (in thousands)                                 Nine months ended September 30,
                                                   2008                  2007

  Net cash provided by operating activities   $       18,050       $         12,938
  Net cash used for investing activities              (8,190 )              (46,949 )
  Net cash used for financing activities      $       (8,048 )     $        (14,195 )

Cash provided by operating activities for the nine months ended September 30, 2008 increased approximately $5.1 million compared to the comparable period in 2007. This increase is primarily the result of a decrease in working capital requirements for inventory and accounts receivables consistent with lower sales in 2008 compared to 2007.

Cash used for investing activities for the nine months ended September 30, 2008 decreased approximately $38.8 million compared to the comparable period in 2007, resulting primarily from the purchases of long-term marketable securities in 2007 that did not occur in 2008.

Cash used for financing activities for the nine months ended September 30, 2008 decreased approximately $6.1 million primarily due to a decrease in the cash paid for repurchases of common stock on the open market.

Financial Condition and Liquidity

The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, its overall strong capitalization, and cash generated from operations, will provide sufficient capital to meet the Company's requirements for the next twelve months. The Company believes that the liquidity will allow it the ability to fund any growth and provide the opportunity to take advantage of business opportunities that may arise.

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.

Cash Requirements

The Company currently expects that capital expenditures during 2008 will be approximately $0.6 million, of which $0.3 million has been spent through September 30, 2008.

The Company participates in a multiple employer Retirement Income Plan, sponsored by RPC, Inc. ("RPC"). The Company does not currently expect to make any contributions to this plan during 2008.

On October 28, 2008, the Board of Directors approved a quarterly cash dividend per common share of $0.065. 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 purchased a total of 4,925,157 shares in the open market pursuant to April 2001, September 2005, and January 2008 resolutions of the Board of Directors that authorized in the aggregate the repurchase of up to 8,250,000 shares. As of September 30, 2008, the Company can purchase 3,324,843 additional shares under these programs. The Company did not repurchase any shares under this program during the third quarter of 2008.

During the fourth quarter of 2008, the Company received notification of repurchase obligations totaling approximately $2.6 million resulting from dealer floor plan financing defaults. There are additional dealers experiencing financial difficulty as a result of the current market conditions and the Company may in the future incur additional repurchase obligations. See further information regarding repurchase obligations in Note 7 of the Consolidated Financial Statements and in the section below titled "Off Balance Sheet Arrangements."

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 ranging from five to ten years. See Note 7 to the Consolidated Financial Statements for a detail of activity in the warranty accruals during the nine months ended September 30, 2008 and 2007.

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 third party lenders whereby the Company guarantees varying amounts of debt for qualifying dealers on boats in inventory. The Company's obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third party lender. 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 debt obligation on those boats, up to certain contractually determined dollar limits by lender. Based on the amounts outstanding as of September 30, 2008, the maximum contractual obligation to these lenders totaled approximately $6.7 million. Our obligation relating to a maximum of $4.0 million of this total expire one year after the July 1, 2008 effective date of these agreements and resets to the same maximum for one additional year thereafter. Our obligation related to the remaining $2.7 million of this total varies based on dealer floor plan debt outstanding, decline over time based on the age of the inventory, and remain in force for periods ranging up to 24 months from the end of the third quarter of 2008. The Company records an estimate of the fair value of the guarantee liability at the end of each reporting period.

During the fourth quarter of 2008, the Company received notification of repurchase obligations totaling approximately $2.6 million resulting from defaults by two dealers. The Company re-evaluated the fair value of the Company's guarantee liability under the foregoing circumstances and estimates a liability of approximately $177,000 as of September 30, 2008. In accordance with these agreements, the Company is also required to assist the lenders in remarketing additional boats with a resale value of approximately $1.5 million. There are additional dealers experiencing financial difficulty as a result of the current market conditions and the Company may incur additional repurchase obligations totaling up to $4.1 million in accordance with the repurchase agreements. Management will monitor the risk of additional defaults and resulting repurchase obligations and will adjust the guarantee liability accordingly. See further information regarding repurchase obligations in Note 13 of the Consolidated Financial Statements.

RELATED PARTY TRANSACTIONS

In conjunction with its spin-off from RPC in 2001, the Company and RPC entered into various agreements that define their relationship after the spin-off. A detailed discussion of the various agreements in effect is contained in the Company's annual report on Form 10-K for the year ended December 31, 2007. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.6 million in the nine months ended September 30, 2008 and 2007.

CRITICAL ACCOUNTING POLICIES

The discussion of Critical Accounting Policies is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended December 31, 2007. There have been no significant changes in the critical accounting policies since year-end.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Notes 3 and 12 of the Consolidated Financial Statements for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.

SEASONALITY

Marine Products' quarterly operating results are affected by weather and general economic conditions. Quarterly operating results for the second quarter historically have reflected the highest quarterly sales volume during the year with the first quarter being the next highest sales quarter. However, the results for any quarter are not necessarily indicative of results to be expected in any future period.

INFLATION

During the past several years the Company has experienced an increase in certain material and component costs due to increases in the price of many of the commodities used as raw materials for our manufacturing processes. The Company responded to these increases in costs by instituting price increases to its dealers during previous model years. However, these price increases did not fully absorb the increased material costs during the past two years and therefore negatively impacted the Company's gross margin. During the third quarter of 2008, the prices of many of these commodities fell dramatically. This fall in prices may lead to lower materials costs during the remainder of 2008 and 2009. Given the volatility in many commodities markets right now, no assurance can be given that commodities prices will continue to fall or at what prices they can be purchased in the future.

New boat buyers typically finance their purchases. To the extent that credit is available for purchasing boats, interest rates have fallen recently due to Federal Reserve actions. Given the volatility of interest rates, no assurance can be given that interest rates will remain low or that they will not rise in the future.

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, the expected effect of recent accounting pronouncements on the Company's consolidated financial statements; the Company's expectation that it will not make any contributions to its pension plan in 2008; the Company's belief that there are not any near-term catalysts which will improve their retail selling environment for our products; the Company's belief that additional costs associated with consolidating plants, reducing production from current levels, and additional work force reductions will not be material; the Company's belief that it may be required to implement additional sales incentive programs designed to sell inventory; the Company's belief it will continue to experience the effect of reduced consumer demand for the remainder of 2008 and into at least early 2009, which will adversely effect net sales, net income, operating margins and cash flows; the Company's belief that its liquidity, capitalization and cash expected to be generated from operations will provide sufficient capital to meet the Company's requirements for the next twelve months; the Company's expectations about capital expenditures during 2008; the Company's expectations about dividends; that the Company may in the future incur additional repurchase obligations as a result of dealer floor plan financing defaults; the Company's belief that the fall in prices of many commodities used as raw materials for its manufacturing processes in the third quarter may lead to lower material costs during the remainder of 2008 and 2009; the Company's expectations regarding market risk of its investment portfolio; and the Company's expectation about the effect of litigation on the Company's financial position or results of operations. The words "may," "should," "will," "expect," "believe," "anticipate," "intend," "plan," "believe," "seek," "project," "estimate," and similar expressions used in this document that do not relate to historical facts are intended to identify forward-looking statements. Such statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. We caution you that such statements are only predictions and not guarantees of future performance and that actual results, developments and business decisions may differ from those envisioned by the forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: possible decreases in the level of consumer confidence impacting discretionary spending, business interruptions due to adverse weather conditions, increased interest rates, unanticipated changes in consumer demand and preferences, deterioration in the quality of Marine Products' network of independent boat dealers or availability of financing of their inventory, our ability to insulate financial results against increasing commodity prices, the impact of rising gasoline prices and a weak housing market on consumer demand for our products, competition from other boat manufacturers and dealers, and insurance companies that insure a number of Marine Products' marketable securities have recently been downgraded, which may cause volatility in the market price of Marine Products' marketable securities. Additional discussion of factors that could cause the actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in Marine Products' Form 10-K, filed with the Securities and Exchange Commission for the year ended December 31, 2007. The Company does not undertake to update its forward-looking statements.