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 nine 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 third quarter of 2009, our production levels were significantly lower than the levels during the third quarter of 2008. Despite ongoing cost reduction efforts, the Company sustained an operating loss during the third quarter of 2009 primarily due to manufacturing cost inefficiencies as a result of very low production levels and very low sales to dealers, as well as additional costs incurred for our dealer inventory reduction programs. However, as a result of our inventory reduction efforts, our dealer inventory levels are down 64 percent in comparison to the same period in 2008. Due to our lower production at the end of the third quarter compared to the prior year, our unit backlog at the end of the quarter is slightly higher 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 four years ago continued during the third quarter of 2009. The ongoing recession and lack of consumer financing continued to prevent consumers from making large discretionary purchases, and we continued to support our dealers in their efforts to reduce inventories and prepare for the 2010 winter boat and retail selling seasons. As of the end of the third quarter of 2009, the Company has an agreement in place with a large floor plan lender for the 2010 model year on terms the Company believes are consistent with current conditions in the credit markets. This floor plan lender has reached agreement with many of our individual dealers although interest rates are higher and credit terms are more stringent than in the past. Also, a number of smaller banks are considering offering floorplan lending to our dealers. At our recent annual dealer conference, our dealers expressed interest in our 2010 models and recognized both our recent awards for customer satisfaction and our market share gains in the 20- to 40- foot sterndrive market. Marine Products believes that dealer inventory levels have reached appropriate and manageable levels, evidenced by the fact that at the end of the third quarter our dealer inventories were the lowest they had been in 13 years. As a result of low inventory levels and recent positive developments, we began to increase production during the fourth quarter of 2009 in anticipation of the 2010 winter boat show and upcoming retail selling seasons.

While we continued the use of retail sales incentive programs beyond normal dealer incentives during 2009, primarily related to older inventory for the entire 2009 retail selling season, we believe that these programs can be curtailed or eliminated during the 2010 model year. These retail sales incentive programs deepened our operating losses during the nine months ending September 30, 2009, but we believe that they benefited the Company by reducing field inventories significantly and enabling us to meet dealer and retail demand with current model year products. The cost of our inventory reduction program was approximately $1.8 million in the third quarter of 2009 and contributed to our operating loss for the quarter.

The Company's strategy at the present time is to continue managing our manufacturing schedule 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, increasing market share as other manufacturers become insolvent, and considering appropriate acquisition targets.

                  MARINE PRODUCTS CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

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

                                                 Three months ended             Nine months ended
($ in thousands)                                    September 30                   September 30
                                                  2009          2008         2009          2008
Total number of boats sold                            148          610           677         3,130
Average gross selling price per boat           $     47.3     $   48.5     $    47.7     $    46.3
Net sales                                      $    8,734     $ 31,582     $  35,158     $ 152,858
Percentage of cost of goods sold to net
sales                                                87.0 %       83.8 %        95.6 %        80.6 %
Gross profit margin percent                          13.0 %       16.2 %         4.4 %        19.4 %
Percentage of selling, general and
administrative expenses to net sales                 51.3 %       12.9 %        45.4 %        12.4 %
Operating (loss) income                        $   (3,340 )   $  1,018     $ (14,407 )   $  10,630
Warranty expense                               $      507     $    545     $   1,342     $   2,719

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

Net sales for the three months ended September 30, 2009 decreased $22.8 million or 72.3 percent compared to the comparable period in 2008. The change in net sales was due primarily to a 75.7 percent decrease in the number of boats sold coupled with a 2.5 percent decrease 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 the majority of weak retail demand by liquidating existing inventory. Average gross selling price per boat declined among the Sunesta Wide Techs and Xtremes, partially offset by increased average selling prices in our other product lines, including sales of the Premiere Sport Yachts during the quarter. In the third quarter of 2009, sales outside of the United States accounted for 26.1 percent of net sales compared to 27.0 percent of net sales in the prior year.

Cost of goods sold for the three months ended September 30, 2009 was $7.6 million compared to $26.5 million for the comparable period in 2008, a decrease of $18.9 million or 71.3 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 September 30, 2009 were $4.5 million compared to $4.1 million for the comparable period in 2008, an increase of $0.4 million or 9.6 percent. The increase in selling, general and administrative expenses was primarily due to $1.8 million in costs recognized during the third quarter of 2009 for our dealer inventory reduction programs, partially offset by decreases in other expenses which vary with sales and profitability, such as incentive compensation, as well as reduced employee headcount. Warranty expense was 5.8 percent of net sales for the three months ended September 30, 2009 compared to 1.7 percent in the prior year due primarily to approximately $0.4 million in additional warranty expense recognized during the quarter relating to boats sold in prior periods.

Operating (loss) income for the three months ended September 30, 2009 decreased $4.4 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 September 30, 2009 and $0.6 million for the comparable period in 2008. The decrease was primarily due to a decrease in the average investment balance compared to the prior year.

Income tax (benefit) provision for the three months ended September 30, 2009 declined $2.3 million to a benefit of $1.3 million from an income tax provision of $1.0 million for the comparable period in 2008. The income tax benefit for the three months ended September 30, 2009 reflects a beneficial effective tax rate of 44.9 percent, compared to an effective tax rate of 58.3 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.

NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2008

Net sales for the nine months ended September 30, 2009 decreased $117.7 million or 77.0 percent compared to the comparable period in 2008. The change in net sales was due primarily to a 78.4 percent decrease in the number of boats sold partially offset by a 3.0 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 nine months ended September 30, 2009, sales outside of the United States accounted for 28.3 percent of net sales compared to 33.2 percent of net sales in the prior year.

Cost of goods sold for the nine months ended September 30, 2009 was $33.6 million compared to $123.3 million for the comparable period in 2008, a decrease of $89.6 million or 72.7 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 nine months ended September 30, 2009 were $15.9 million compared to $19.0 million for the comparable period in 2008, a decrease of $3.0 million or 15.9 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 a decline of $1.4 million in warranty expense partially offset by $6.0 million in costs recognized during the first nine months of 2009 for our dealer inventory reduction programs. Also, salary, research and development and advertising expenses were lower due to cost control measures instituted in the past year partially offset by costs incurred in connection with boat repurchase obligations totaling approximately $0.7 million during the nine month ended September 30, 2009.

Operating (loss) income for the nine months ended September 30, 2009 declined $25.0 million to $(14.4) million operating loss compared to $10.6 million operating income in the comparable period of 2008. Operating loss was primarily due to the significant decline in gross profit partially offset by a decrease in selling, general and administrative expenses.

Interest income was $1.3 million during the nine months ended September 30, 2009 and $1.8 million for the comparable period in 2008. The decrease was primarily due to a decrease in the average investment balance compared to the prior year.

Income tax (benefit) provision for the nine months ended September 30, 2009 declined $9.0 million to a benefit of $5.2 million from an income tax provision of $3.7 million for the comparable period in 2008. The income tax benefit for the nine months ended September 30, 2009 reflects an effective tax rate of 39.7 percent, compared to an effective tax rate of 30.0 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 September 30, 2009 were $1.0
million. In addition, the aggregate of short-term and long-term marketable
securities were $47.5 million at September 30, 2009 compared to $46.8 million at
December 31, 2008. The following table sets forth the historical cash flows for:

                                                             Nine months ended September
(in thousands)                                                          30,
                                                             2009                2008

Net cash (used for) provided by operating activities      $    (2,638 )       $    18,050
Net cash used for investing activities                           (582 )            (8,190 )
Net cash used for financing activities                    $      (429 )       $    (8,048 )

Cash (used for) provided by operating activities for the nine months ended September 30, 2009 decreased approximately $20.7 million compared to the comparable period in 2008. This decrease is primarily the result of a decrease in earnings and lower working capital requirements primarily due to the increase in incomes taxes receivable as a result of net losses during 2009 and lower production volumes during the current period in comparison to prior year.

Cash used for investing activities for the nine months ended September 30, 2009 decreased approximately $7.6 million compared to the comparable period in 2008 due to lower net purchases of marketable securities in the current year.

Cash used for financing activities for the nine months ended September 30, 2009 decreased approximately $7.6 million primarily due to a reduction in dividends paid per share during 2009 coupled with lower cost of common share repurchases in 2009 compared to 2008.

Financial Condition and Liquidity

The Company believes that the liquidity provided by existing cash, cash equivalents and marketable securities, and its overall strong capitalization 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 $150 thousand, of which $76 thousand has been spent through September 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. As of September 30, 2009, the Company has purchased a total of 4,925,157 shares in the open market under this program and there are 3,324,843 shares that remain available for repurchase. The Company did not repurchase any shares under this program during the nine months ended September 30, 2009.

The Company incurred obligations for inventory repurchases totaling approximately $6.3 million during the nine months ended September 30, 2009 resulting from dealer defaults on floor plan financing. As of September 30, 2009, there was approximately $1.0 million due to lenders related to repurchased inventory. There is approximately $0.9 million of repurchased boats remaining in inventory as of September 30, 2009 as the majority of 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 nine months ended September 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 to the Company in a new and unused condition as defined, 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 totaling approximately $6.3 million during the nine months ended September 30, 2009. The majority of this dealer inventory has been redistributed among existing and replacement dealers.

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.

During the third quarter of 2009, an amendment to the current agreement with one of its 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 additional lenders with an aggregate maximum repurchase obligation of approximately $4.5 million with expiration dates from June 30 to September 30, 2010. As of September 30, 2009, the Company has an aggregate remaining repurchase obligation of $5.7 million with these 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 $0.5 million in the nine months ended September 30, 2009 and approximately $0.6 million in the nine months ended September 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 2 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 nine months 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 rise in the near term, so no assurance can be given regarding the prices at which they can be purchased in the future. Also, 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, given the massive U.S. fiscal stimulus that has been enacted in 2009.

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 inventory financing will be available to its dealers in the current model year; the Company's belief that dealer inventory levels have reached appropriate and manageable levels; the Company's belief that it can curtail or eliminate the continued use of retail sales incentive programs to reduce dealer inventory; the Company's belief that dealer inventory reductions will enable the Company to meet dealer and retail demand with current model year products; the Company's ability to produce an appropriate quantity of 2010 model-year products to meet firm demand and preserve the value of brand names while maintaining a prudent amount of research and development to develop new 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 and capitalization 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 prices of many commodities used as raw materials for its manufacturing processes 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 . . .