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, 2008 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 and credit availability - 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.

Our production levels were maintained at very low levels during the first six months of 2009 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 second quarter of 2009, our production levels were significantly lower than the levels during the second quarter of 2008. Despite ongoing cost reduction efforts, the Company sustained an operating loss during the second quarter of 2009 primarily due to manufacturing cost inefficiencies as a result of very low production levels and sales to dealers, as well as additional expenses recorded for our dealer inventory reduction programs. However, as a result of our inventory reduction efforts, our dealer inventory levels are down 45% in comparison to the same period in 2008. Consistent with the overall reduction in demand for recreational products, including fiberglass boats, our unit backlog at the end of the quarter has declined significantly in comparison to this time last year.

OUTLOOK

The discussion on the outlook for 2009 is incorporated herein by reference from the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008.

The weak dealer and customer demand for recreational boats that began almost four years ago continued during the second quarter of 2009. The ongoing recession and lack of consumer financing continued to prevent consumers from making large discretionary purchases. The continued real estate downturn, particularly in key boating markets, also continued to affect the recreational boating industry. Cool, rainy weather in the Northeast, which has a short boating season, may have also reduced retail demand in this important market for the Company's products. These factors combined to make the 2009 retail selling season weaker than last year. The ongoing curtailment of business lending has also made it difficult for dealers to secure inventory financing, which has reduced their ability to carry large amounts of inventory. As of the end of the second quarter of 2009, the Company has an agreement in place with a large floor plan lender for the 2010 model year on terms which the Company believes are consistent with current conditions in the credit markets. While this floor plan lender has not yet reached agreement with our individual dealers, the Company believes at this time that such agreements will be reached and that inventory financing will be available for our dealers in the upcoming model year.

Marine Products 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 maintain lower production levels in order to manage dealer inventory. We have accomplished this by plant consolidation in the fourth quarter of 2008 and additional workforce reductions, as well as periodically idling our manufacturing operations on a regular, planned schedule. In addition, the weak selling environment and dealer inventory levels required us to develop sales incentive programs in 2009 designed to sell dealer boat inventory. We developed a new retail incentive program to be in effect during the 2009 spring retail selling season, which has been in effect through the second quarter of 2009. We believe that this program benefited our dealers by enhancing their short-term financial results, and we believe that this program will benefit our dealers and the Company by enabling us to produce and sell current-year models when retail demand returns. However, the cost of this retail incentive program totaling approximately $4.3 million contributed to us realizing a significant operating loss for the second quarter of 2009.

The Company's strategy at the present time is to produce an appropriate quantity of 2010 model-year products in order to meet firm demand and preserve the value of our brand names, while continuing a prudent amount of product development efforts for the future. In addition, we will continue to monitor dealer field inventory as we begin to ship products produced during the 2010 model year. We are also monitoring the long-term effects of the protracted downturn in our industry in order to take advantage of opportunities that may arise due to the financial difficulties of other manufacturers. Such opportunities may include gaining new dealers or increasing market share as other manufacturers become insolvent.

                  MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

Key operating and financial statistics for the three and six months ended June
30, 2009 and 2008 follow:

  ($ in thousands)                                 Three months ended             Six months ended
                                                        June 30                       June 30
                                                   2009           2008          2009           2008
  Total number of boats sold                           219         1,118            529          2,520
  Average gross selling price per boat          $     51.6      $   47.1      $    47.8      $    45.8
  Net sales                                     $   12,618      $ 55,734      $  26,424      $ 121,276
  Percentage of cost of goods sold to net
sales                                                 96.3 %        80.2 %         98.5 %         79.8 %
  Gross profit margin percent                          3.7 %        19.8 %          1.5 %         20.2 %
  Percentage of selling, general and
administrative expenses to net sales                  53.7 %        11.9 %         43.4 %         12.3 %
  Operating (loss) income                       $   (6,310 )    $  4,407      $ (11,067 )    $   9,612
  Warranty expense                              $      188      $    930      $     835      $   2,174

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008

Net sales for the three months ended June 30, 2009 decreased $43.1 million or 77.4 percent compared to the comparable period in 2008. The change in net sales was due primarily to an 80.4 percent decrease in the number of boats sold partially offset by a 9.6 percent increase in the average gross selling price per boat. Unit sales among all models declined significantly compared to the prior year, due to our dealers meeting retail demand by liquidating existing inventory. Sales of the Chaparral Sunesta Wide Techs and Xtremes and sales of several Premiere Sports Yachts during the quarter accounted for the increase in the average selling price per boat. In the second quarter of 2009, sales outside of the United States accounted for 22.5 percent of net sales compared to 37.9 percent of net sales in the prior year.

Cost of goods sold for the three months ended June 30, 2009 was $12.2 million compared to $44.7 million for the comparable period in 2008, a decrease of $32.6 million or 72.8 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of significant manufacturing cost inefficiencies due to very low production volumes and sales.

Selling, general and administrative expenses for the three months ended June 30, 2009 were $6.8 million compared to $6.6 million for the comparable period in 2008, an increase of $0.2 million or 2.3 percent. The increase in selling, general and administrative expenses was primarily due to $4.3 million in expenses for dealer inventory reduction efforts, partially offset by decreases in other expenses which vary with sales and profitability, as well as the impact of ongoing cost reduction measures. Warranty expense was 1.5 percent of net sales for the three months ended June 30, 2009 compared to 1.7 percent in the prior year. Additionally, costs incurred during the second quarter of 2009 in connection with boat repurchase obligations totaled approximately $0.2 million.

Operating (loss) income for the three months ended June 30, 2009 decreased $10.7 million compared to the comparable period in 2008. Operating loss was primarily due to a significant decline in gross profit and higher selling, general and administrative expenses.

Interest income was $0.4 million during the three months ended June 30, 2009 and $0.6 million for the comparable period in 2008. The decrease was primarily due to a decrease in the short term interest rates compared to prior year.

Income tax (benefit) provision for the three months ended June 30, 2009 of $(2.1) million was $3.2 million lower than the income tax provision of $1.1 million for the comparable period in 2008. The income tax benefit for the three months ended June 30, 2009 reflects a beneficial effective tax rate of 35.3 percent, compared to an effective tax rate of 22.6 percent for the comparable period in the prior year. The change in the effective tax rate was due primarily to the relationship of our pretax income (loss) to permanent differences between book and taxable income.

SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO SIX MONTHS ENDED JUNE 30, 2008

Net sales for the six months ended June 30, 2009 decreased $94.9 million or 78.2 percent compared to the comparable period in 2008. The change in net sales was due primarily to a 79.0 percent decrease in the number of boats sold partially offset by a 4.4 percent increase in average gross selling price per boat. Unit sales among all models declined significantly compared to the prior year. Sales of the Chaparral Sunesta Wide Techs and Xtremes in addition to the sales of several Premiere Sports Yachts accounted for the increase in the average selling price per boat. For the six months ended June 30, 2009, sales outside of the United States accounted for 29.0 percent of net sales compared to 34.9 percent of net sales in the prior year.

Cost of goods sold for the six months ended June 30, 2009 was $26.0 million compared to $96.8 million for the comparable period in 2008, a decrease of $70.8 million or 73.1 percent. Cost of goods sold, as a percentage of net sales, increased primarily as the result of significant manufacturing cost inefficiencies due to very low production volumes and sales.

Selling, general and administrative expenses for the six months ended June 30, 2009 were $11.5 million compared to $14.9 million for the comparable period in 2008, a decrease of $3.4 million or 22.9 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 partially offset by $4.3 million in expenses for dealer inventory reduction efforts. Also, salary, research and development and advertising expenses were lower due to cost control measures instituted in the past year. Additionally, costs incurred during the six month ended June 30, 2009 in connection with boat repurchase obligations totaled approximately $0.7 million.

Operating (loss) income for the six months ended June 30, 2009 decreased $10.7 million compared to the comparable period in 2008. Operating loss was primarily due to a significant decline in gross profit partially offset by a decrease in selling, general and administrative expenses.

Interest income was $0.8 million during the six months ended June 30, 2009 and $1.2 million for the comparable period in 2008. The decrease was primarily due to a decrease in the short term interest rates compared to prior year.

Income tax (benefit) provision for the six months ended June 30, 2009 of $(3.9) million was $6.7 million lower than the income tax provision of $2.8 million for the comparable period in 2008. The income tax benefit for the six months ended June 30, 2009 reflects an effective tax rate of 38.2 percent, compared to an effective tax rate of 25.7 percent for the comparable period in the prior year. The change in the effective rate was due primarily to the relationship of our pretax income (loss) to permanent differences between book and taxable income.

                  MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The Company's cash and cash equivalents at June 30, 2009 were $10.1 million. The
following table sets forth the historical cash flows for:

  (in thousands)                                             Six months ended June 30,
                                                               2009             2008

  Net cash provided by operating activities                $      4,640    $       18,619
  Net cash provided by (used for) investing activities            1,322            (7,183 )
  Net cash used for financing activities                   $       (441 )  $       (5,694 )

Cash provided by operating activities for the six months ended June 30, 2009 decreased approximately $14.0 million compared to the comparable period in 2008. This decrease is primarily the result of a decrease in net earnings and the payment of repurchase obligations to lenders partially offset by lower working capital requirements for inventory and accounts receivable consistent with lower sales in 2009 compared to 2008.

Cash provided by investing activities for the six months ended June 30, 2009 increased approximately $8.5 million compared to the comparable period in 2008, which resulted primarily from the sales of long-term marketable securities in 2009.

Cash used for financing activities for the six months ended June 30, 2009 decreased approximately $5.3 million primarily due to a reduction in dividends paid per share during 2009 compared to 2008 coupled with lower cost of common share repurchases in 2009.

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'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 2009 will be approximately $365 thousand, of which $62 thousand has been spent through June 30, 2009.

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 2009.

On April 28, 2009, the Board of Directors voted to suspend the quarterly cash dividend to common stockholders.

On January 22, 2008, the Board of Directors authorized an additional 3,000,000 shares that the Company may 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 June 30, 2009. As of June 30, 2009, there are 3,324,843 shares that remain available for repurchase. The Company did not repurchase any shares under this program during the six months ended June 30, 2009.

The Company incurred obligations for inventory repurchases totaling approximately $5.3 million during the six months ended June 30, 2009 resulting from dealer defaults on floor plan financing. As of June 30, 2009, there are no outstanding amounts due to lenders for inventory repurchases and all repossessed boats have been redistributed among existing and replacement dealers. If additional dealers experience financial difficulty as a result of the current market conditions, the Company may incur additional repurchase obligations under current programs or programs initiated in the future for the 2010 model year. 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 six months ended June 30, 2009 and 2008.

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. As a result of dealer defaults, the Company became contractually obligated to repurchase dealer inventory for approximately $5.3 million during the six months ended June 30, 2009.

Management continues to monitor the risk of additional defaults and resulting repurchase obligation based in part on information provided by the third-party floor plan lenders and will adjust the guarantee liability at the end of each reporting period based on information reasonably available at that time. See further information regarding repurchase obligations in Note 7 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. Subsequent to June 30, 2009, an amendment to the current agreement with one of the Company's lenders has been executed with a contractual repurchase limit of $9.0 million effective January 1, 2009 which will expire June 30, 2010. The Company has contractual repurchase agreements with two additional lenders with an aggregate remaining repurchase obligation of approximately $2.1 million which effectively expire June 30, 2010. Effective July 1, 2009, the Company has an aggregate remaining repurchase obligation dollar limit of approximately $6.5 million with these three financing institutions.

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, 2008. RPC charged the Company for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products totaling approximately $0.4 million in the six months ended June 30, 2009 and approximately $0.5 million in the six months ended June 30, 2008.

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, 2008. 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 third and fourth quarters of 2008, the Company experienced a significant decline in certain material and component costs that include hydrocarbon feedstocks and industrial metals such as copper. The fall in prices has led to lower material costs. During the first and second quarters of 2009, the prices of some of these commodities have increased, although they are still much lower than they were in the second quarter of 2008. We believe that the prices for these commodities will remain stable or will rise in the near term, so no assurance can be given regarding the prices at which they can be purchased in the future. Also, given low retail consumer demand for the Company's products at the present time, no assurance can be given that the Company will be able to institute price increases to its dealers in the event that the prices of its raw materials and components increase in the future.

New boat buyers typically finance their purchases. Higher inflation typically results in higher interest rates that could translate into an increased cost of boat ownership. Prospective buyers may choose to forego or delay their purchases or buy a less expensive boat in the event that interest rates rise. High inflation and interest rates are not a concern at the present time, although they may become an issue 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 estimate of the guarantee liability under dealer floor plan financing arrangements; the Company's expectation that it will not make any contributions to its pension plan in 2009; the Company's belief that its dealers will reach agreement with is floor plan lender for inventory financing for the upcoming model year; the Company's belief that there are not any near-term catalysts which will improve the retail selling environment; the Company's ability to produce an appropriate quantity of current-year models to meet firm demand and preserve the value of brand names while maintaining a prudent amount of research and development to develop new 2010 models; the Company's ability to take advantages of opportunities that may arise due to financial difficulties of other manufacturers; 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 2009; 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 will remain stable or will rise in the near future; 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: economic conditions, unavailability of credit and 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 . . .