The following discussion is based upon and should be read in conjunction with "Selected Financial Data" and "Financial Statements and Supplementary Data." See also "Forward-Looking Statements" on page 2.

Overview

Marine Products, through our wholly-owned subsidiaries Chaparral and Robalo, is a leading manufacturer of recreational fiberglass powerboats. Our sales and profits are generated by selling the products that we manufacture to a network of independent dealers who in turn sell the products to retail customers. These dealers are located throughout the continental United States and in several international markets. Most of these dealers finance their inventory through third-party floor plan lenders, who pay Marine Products upon delivery of the products to the dealers.

We manage our Company by focusing on the execution of the following business and financial strategies:

? Manufacturing high-quality, stylish, and innovative powerboats for our dealers and retail customers,

? Providing our independent dealer network appropriate incentives, training, and other support to enhance their success and their customers' satisfaction, thereby facilitating their continued relationship with us,

? Managing our production and dealer order backlog to optimize operating results and reduce risk in the event of a further downturn in sales of our products,

? Maintaining a flexible, variable cost structure which can be reduced quickly when deemed appropriate,

? Focusing on the competitive nature of the boating business and designing our products and strategies in order to grow and maintain profitable market share,

? Monitoring the activities and financial condition of the third-party floor plan lenders who finance our dealers' inventories and of our dealers,

? 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 the Company's common stock on the open market, and

? 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 various models, and indications of near term demand such as consumer confidence, interest rates, dealer orders placed at our annual dealer conferences, and retail attendance and orders at annual winter boat show exhibitions. We also consider trends related to certain key financial and other data, including our market share, unit sales of our products, average selling price per boat, and gross profit margins, among others, as indicators of the success of our strategies. Marine Products' financial results are affected by consumer confidence - because pleasure boating is a discretionary expenditure, interest rates - because many retail customers finance the purchase of their boats, and other socioeconomic and environmental factors such as availability of leisure time, consumer preferences, demographics and the weather.

During 2008, the industry continued the trend of lower wholesale and retail sales that began in the fourth quarter of 2005. High fuel prices and the problems in the residential mortgage market which came to light in 2007 continue to impact both consumer confidence as a whole, as well as consumer spending decisions in popular boating areas such as Florida and Southern California. In addition, the financial crisis which intensified in late 2008 reduced the availability of floor plan credit for our dealers, which in turn reduced their capacity to accept deliveries of new products from us. 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. These factors, along with order cancellations resulting from a continued weak retail selling environment and the repurchase obligations resulting from dealer defaults during the fourth quarter, have required us to consolidate several plants in the fourth quarter, reduce production further from third quarter 2008 levels, and undertake additional workforce reductions. In addition, the weak selling environment and dealer inventory levels may require us to implement additional sales incentive programs designed to sell inventory and to further reduce production levels. Management will continue to monitor the risk of additional dealer defaults and resulting repurchase obligations.

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, 2008 (latest data available to us), Chaparral's market share in the 18 to 35 foot sterndrive category was 7.5 percent, an increase from our market share in the same category for the twelve months ended December 31, 2007 of 7.2 percent. This increase was concentrated in the larger 21 to 35 foot size boats in our market. We believe this was the result of two factors: the execution of our stated strategy of selling larger, more profitable boats, and the strategy of certain of our competitors, who have built and sold a large number of entry-level smaller boats which are constructed in offshore manufacturing plants with lower cost labor. Although we will continue to monitor our market share and believe it to be important, we also believe that maximizing profitability takes precedence over growing our market share.

Outlook

Management believes that net sales and profits in 2009 will decline compared to 2008. This belief is based on lower attendance levels and sales during the first part of the 2009 winter boat show season compared to the same period in 2008, as well as the status of dealer inventories and backlog as of the end of 2008. In addition, management believes that consumers continue to be concerned with the weak global economy. The financial crisis, which intensified in the second half of 2008, has also reduced the availability of credit from third-party floor plan lenders who provide inventory financing to the vast majority of our dealers. Also, the prolonged drought in several of Marine Products' major Southeastern markets has reduced or eliminated recreational boaters' access to docks and boat ramps, and has made certain waterways unusable. Boat show attendance has historically been positively correlated with retail boat sales later in the selling season because consumers attend shows due to their interest in recreational boating and make initial purchasing decisions at a boat show exhibition. However, there can be no assurance that this relationship will continue in 2009 or subsequent years. Pleasure boating is a discretionary consumer activity, and can be negatively impacted by many factors; therefore, an increase in interest rates, a decline in the availability of consumer credit, high fuel costs, and further declines in consumer confidence could have an additional negative impact on net sales and profits. The current financial crisis may have long-term effects on consumer behavior with regard to pleasure boating as well. Current and potential future lower returns on financial assets may force consumers to delay retirement, or to choose more modest lifestyles when they do retire. In such a case, consumers may not purchase boats, may purchase boats later in their lives, or may purchase smaller, less expensive boats. Over the past several years, Marine Products as well as other manufacturers have been improving their customer service capabilities, marketing strategies and sales promotions in order to attract more consumers to recreational boating as well as improve consumers' boating experiences. In addition, the recreational boating industry began a promotional program several years ago which involves advertising and consumer targeting efforts, as well as other activities designed to increase the potential consumer market for pleasure boats. Many manufacturers, including Marine Products, are participating in this program. Management believes that these efforts will benefit the industry and Marine Products. As in past years, Marine Products enhanced the design of a number of its product lines for the 2009 model year which began on July 1, 2008. Also for this model year, Chaparral introduced a 42-foot sport yacht. This model, as well as one of the redesigned product lines from the 2008 model year, received important industry recognitions during 2008. The success of these products should enhance Marine Products sales and operating results in future years. Management believes that both the boating industry promotional advertising program and the Company's new boat models will benefit Marine Products, although the industry is projected to remain in a deep downturn throughout 2009.

Our financial results in 2009 will depend on a number of factors, including interest rates, consumer confidence, the availability of credit to our dealers and consumers, fuel costs, the continued acceptance of our new 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. We anticipate that the Company will continue to experience the effect of reduced consumer demand for at least the remainder of 2009, which will adversely affect net sales, net income, operating margins and cash flows.

Results of Operations

                                                                Years ended December 31,
($'s in thousands)                                         2008           2007           2006
Total number of boats sold                                   3,590          5,444          6,245
Average gross selling price per boat                     $    46.6      $    43.4      $    41.1
Net sales                                                $ 175,622      $ 244,273      $ 261,378
Percentage of gross profit to net sales                       18.2 %         21.5 %         22.7 %
Percentage of selling, general and administrative
expense to net sales                                          13.2 %         12.4 %         12.4 %
Operating income                                         $   8,799      $  22,235      $  26,933
Warranty expense                                         $   3,191      $   4,958      $   6,714

Year Ended December 31, 2008 Compared To Year Ended December 31, 2007

Net Sales. Marine Products' net sales decreased by $68.7 million or 28.1 percent in 2008 compared to 2007. The decrease was primarily due to a 34.1 percent decrease in the number of boats sold, partially offset by a 7.4 percent increase in the average gross selling price per boat. The increase in average gross selling price per boat was due primarily to relatively higher sales of the redesigned Sunesta product line, which also carried higher average selling prices. Also contributing to the increase were sales of Chaparral's new Premiere 400 Sport Yacht during the fourth quarter of 2008.

Cost of Goods Sold. Cost of goods sold decreased 25.1 percent in 2008 compared to 2007, less than the decrease in net sales. As a percentage of net sales, cost of goods sold increased in 2008 compared to 2007, primarily due to cost inefficiencies resulting from lower production volumes and to a lesser extent higher dealer discounts and retail incentives.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 23.4 percent in 2008 compared to 2007 as a result of costs, including incentive compensation and warranty expense, that vary with the level of Company sales and profitability. Warranty expense decreased in 2008 due to lower sales. Warranty expense was 1.8 percent of net sales in 2008 and 2.0 percent of net sales in 2007. These decreases were offset by costs totaling $0.5 million associated with the repurchase of dealer inventory in accordance with agreements with third-party floor plan lenders.

Interest Income. Interest income was $2.4 million in 2008 compared to $2.6 million in 2007. Marine Products generates interest income primarily from investments in tax-exempt municipal obligations.

Income Tax Provision. The effective tax rate in 2008 was 32.4 percent compared to 33.8 percent in 2007

Year Ended December 31, 2007 Compared To Year Ended December 31, 2006

Net Sales. Marine Products' net sales decreased by $17.1 million or 6.5 percent in 2007 compared to 2006. The decrease was primarily due to a 12.8 percent decrease in the number of boats sold, partially offset by a 5.6 percent increase in the average gross selling price per boat. The increase in average gross selling price per boat was due to higher sales of larger boats, in addition to overall price increases that were implemented for the 2008 model year, which began in the third quarter of 2007.

Cost of Goods Sold. Cost of goods sold decreased 5.0 percent in 2007 compared to 2006, less than the decrease in net sales. As a percentage of net sales, cost of goods sold increased in 2007 compared to 2006, primarily due to higher costs of certain raw materials and accessories.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased 6.9 percent in 2007 compared to 2006 as a result of costs that vary with the level of Company sales and profitability. Warranty expense decreased in 2007 due to lower sales and adjustments made in 2006 that did not reoccur in 2007. Warranty expense was 2.0 percent of net sales in 2007 and 2.6 percent of net sales in 2006.

Interest Income. Interest income was $2.6 million in 2007 compared to $2.5 million in 2006. Marine Products generates interest income primarily from investments in tax-exempt municipal obligations.

Income Tax Provision. The higher effective tax rate in 2007 of 33.8 percent compared to 30.9 percent in 2006 resulted from the one time effect of 2005 amended return refunds and tax contingency releases in 2006, as compared to statutorily eliminated foreign trade benefits and reduced research and developments benefits in 2007.

Liquidity and Capital Resources

Cash and Cash Flows

The Company's cash and cash equivalents were $4.6 million at December 31, 2008, $3.2 million at December 31, 2007, and $54.5 million at December 31, 2006. In addition, the aggregate of short-term and long-term marketable securities were $46.8 million at December 31, 2008, $45.0 million at December 31, 2007 and $4.4 million at December 31, 2006. During 2007 the Company changed its investment strategy towards investments with original maturities greater than three months.

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

(in thousands)                                             2008           2007           2006
Net cash provided by operating activities                $  14,045      $  16,431      $ 23,997
Net cash (used for) provided by investing activities        (2,255 )      (41,391 )       1,351
Net cash used for financing activities                   $ (10,401 )    $ (26,263 )    $ (8,494 )

2008

Cash provided by operating activities decreased by $2.4 million in 2008 compared to 2007 as a result of lower net income and a decrease in working capital requirements for inventory consistent with lower sales in 2008 compared to 2007 partially offset by the timing of receipts and payments.

Cash used for investing activities decreased $39.1 million in 2008 compared to 2007, resulting primarily from lower purchases of marketable securities in 2008 compared to 2007. Cash used for investing activities in 2007 was comprised of $40.1 million in net purchases of marketable securities as a result of a new investment strategy and $1.3 million in capital expenditures.

Cash used for financing activities decreased $15.9 million in 2008 compared to 2007 due primarily to a decrease of $16.6 million in cash used to purchase the Company's common stock in the open market.

2007

Cash provided by operating activities decreased by $7.6 million in 2007 compared to 2006 as a result of lower net income and an increase in working capital requirements. Inventories increased as prices for raw materials increased and components were added for new models and also due to timing of boat shipments.

Cash used for investing activities increased $42.7 million in 2007 compared to 2006 due to $40.1 million in net purchases of marketable securities, as we implemented our new investment strategy, offset primarily by $1.3 million in capital expenditures. Cash used for investing activities in 2006 was comprised of $2.9 million in net sales of marketable securities offset primarily by $1.7 million in capital expenditures.

Cash used for financing activities increased $17.8 million in 2007 compared to 2006 due primarily to an increase of $16.5 million in cash used to purchase the Company's common stock in the open market coupled with an increase in the cash dividends paid per common share.

Cash Requirements

Management expects that capital expenditures during 2009 will be approximately $0.4 million for enhancements to certain manufacturing plants.

We currently expect that no additional contributions to the defined benefit pension plan will be required in 2009 to achieve the Company's funding objective.

Based on the shares outstanding on December 31, 2008, the aggregate annual dividends to be paid at the current annual dividend rate of $0.04 per common share would be approximately $1.5 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).

On January 22, 2008 the Board of Directors authorized an additional 3,000,000 shares that the Company can repurchase, increasing the number of shares available for repurchase. The Company has purchased a total of 4,925,157 shares in the open market as of December 31, 2008. As of December 31, 2008, there are 3,324,843 shares that remain available for repurchase.

The Company has entered into agreements with third-party floor plan lenders where it has agreed, in the event of default by the dealer, to repurchase MPC boats repossessed from the dealer. These arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the boats repurchased. During the fourth quarter of 2008, the Company became obligated to repurchase inventory of $2.6 million as a result of dealer defaults. At December 31, 2008, there is $2.4 million that remains payable to floor plan lenders. As a result of a deepened recession and continued turmoil in the financial markets, additional dealers could experience financial difficulty. In the event that a dealer is unable to meet their obligations to third-party floor plan lenders, MPC may become contractually obligated to repurchase boats for up to the remaining aggregate obligation of $4.1 million as of December 31, 2008. See further information regarding repurchase obligations in "NOTE 9:
COMMITMENTS AND CONTINGENCIES" of the Consolidated Financial Statements.

The Company believes that the liquidity provided by its existing cash and cash equivalents, marketable securities, and cash generated from operations will provide sufficient capital to meet its requirements for at least the next twelve months.

Contractual Obligations

     The following table summarizes the Company's contractual obligations as of
December 31, 2008:

                                                                    Payments due by period
                                                            Less
                                                           than 1            1-3            3-5              More
Contractual Obligations                    Total            year            years          years         than 5 years
Long-term debt                          $         -      $         -      $       -      $       -      $            -
Capital lease obligation                    275,455                -              -              -             275,455
Operating leases (1)                      1,480,825          150,282        311,736        304,435             714,372
Purchase obligations (2)                          -                -              -              -                   -
Due to floor plan lenders (3)             2,378,000        2,378,000              -              -                   -
Other long-term liabilities                       -                -              -              -                   -
Total                                   $ 4,134,280      $ 2,528,282      $ 311,736      $ 304,435      $      989,827

(1) Operating leases represent agreements for warehouse space and 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) The Company has agreements with various third-party lenders where it guarantees varying amounts of debt for qualifying dealers on boats in inventory. During the fourth quarter of 2008, MPC became obligated to repurchase inventory of approximately $2.6 million as a result of dealer defaults. As of December 31, 2008, the balance outstanding for these repurchases is approximately $2.4 million which is expected to be paid within one year.

Additionally, the Company had approximately $0.2 million of recorded FIN 48 liabilities and related interest and penalties as of December 31, 2008. Management is unable to make a reasonable estimate as to when cash settlement with the tax authorities might occur due to the uncertainties related to these tax matters.

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 floor plan 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 which vary by lender. During the fourth quarter of 2008, MPC became contractually obligated to repurchase inventory of approximately $2.6 million as a result of dealer defaults of which $2.4 million is payable as of December 31, 2008. As of December 31, 2008, the Company has an aggregate remaining repurchase obligation to lenders of $4.1 million. The Company's remaining obligation relating to a maximum of $1.4 million of this total expire one year after the July 1, 2008 effective date of these agreements and may reset to a maximum of $4.0 million for one additional year thereafter. Our remaining obligation related to the remaining $2.7 million of this total as of December 31, 2008 varies based on dealer floor plan debt outstanding, declines over time based on the age of the inventory, and remains in force for periods ranging up to 24 months from the end of the fourth quarter of 2008. The Company records an estimate of the fair value of the remaining guarantee liability at the end of each reporting period.

As mentioned earlier, the Company recorded the repurchase of inventory totaling approximately $2.6 million resulting from defaults by two dealers. At December 31, 2008, there is $2.4 million that remains payable to floor plan lenders and is recorded in accrued expenses. During the fourth quarter of 2008, the Company redistributed $0.6 million of these boats among existing and replacement dealers. The remaining repurchased boats are included in inventory as of December 31, 2008 and are recorded at a net realizable value of $1.9 million. The Company recorded approximately $0.3 million for costs associated with these repurchases including a reserve for estimated transportation costs and the write down of repurchased inventory to net realizable value. There are additional dealers experiencing financial difficulty as a result of the current market conditions and the Company may under current contractual terms repurchase additional dealer inventory totaling up to $4.1 million. The Company re-evaluated the fair value of the remaining guarantee liability under the foregoing circumstances and recorded a liability of approximately $0.2 million as of December 31, 2008. Management continues to monitor the risk of additional defaults and resulting repurchase obligation based primarily upon information provided by the third-party floor plan lenders and will adjust the guarantee liability accordingly. See further information regarding repurchase obligations in "NOTE 9: COMMITMENTS AND CONTINGENCIES" of the Consolidated Financial Statements.

Historically, and during most of 2008, there were at least two major marine dealer floor-plan financing institutions. At the end of 2008, one of these institutions announced that it would cease floor plan lending to all unaffiliated dealers including those in the marine industry. In early 2009 one lender has approached Marine Products with a request to raise the contractual repurchase limit. During 2008 this lender imposed additional borrowing costs not covered in the current contractual arrangement and Marine Products is presently negotiating with this lender regarding these and other issues regarding contract provisions which expire at the end of the 2009 model 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 $842,000 in 2008, $957,000 in 2007, and $739,000 in 2006. The Company's liability to RPC for these services as of December 31, 2008 and 2007 was approximately $70,000 and $223,000. The Company's directors are also directors of RPC and all of the Company's executive officers with the exception of one are employees of both the Company and RPC.

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

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.

Critical Accounting Policies

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require . . .