UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C. 20549FORM
      10-K(Mark
      One)x
                      Annual
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934o
                      Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2008Commission
      File No. 1-16263MARINE
      PRODUCTS
CORPORATION




Delaware
              
              58-2572419(State
      of Incorporation)
              
              (I.R.S.
      Employer Identification No.)2801
      BUFORD HIGHWAY, SUITE 520
                ATLANTA,
      GEORGIA 30329
                (404)
      321-7910Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
              
              Name
      of each exchange on which registeredCOMMON
      STOCK, $0.10 PAR VALUE
              
              NEW
      YORK STOCK EXCHANGESecurities
      registered pursuant to section 12(g) of the Act:
                NONE




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o Yes x No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. o Yes x No




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. x
Yes o
No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
      accelerated filer o
            
            Accelerated
      filer x
            
            Non-accelerated
      filer o
            
            Smaller
      reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x




The
aggregate market value of Marine Products Corporation common stock held by
non-affiliates on June 30, 2008, the last business day of the registrant’s most
recent second fiscal quarter, was $59,049,694 based on the closing price on the
New York Stock Exchange on June 30, 2008 of $6.60 per share.




Marine
Products Corporation had 36,902,490 shares of common stock outstanding as of
February 13, 2009.




Documents
Incorporated by Reference




Portions
of the Proxy Statement for the 2009 Annual Meeting of Stockholders of Marine
Products Corporation are incorporated by reference into Part III, Items 10
through 14 of this report.
















PART
I




References
in this document to “we,” “our,” “us,” “Marine Products,” or “the Company” mean
Marine Products Corporation (“MPC”) and its subsidiaries, Chaparral Boats, Inc.
(“Chaparral”) and Robalo Acquisition Company LLC (“Robalo”), collectively or
individually, except where the context indicates otherwise.




Forward-Looking
Statements




Certain
statements made in this report that are not historical facts are
“forward-looking statements” under the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements may include, without limitation,
statements that relate to our business strategy, plans and objectives, and our
beliefs and expectations regarding future demand for our products and services
and other events and conditions that may influence our performance in the
future.




The words
“may,” “should,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,”
“seek,” “project,” “estimate,” and similar expressions used in this document
that do not relate to historical facts are intended to identify forward-looking
statements. Such statements are based on certain assumptions and analyses made
by our management in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes to be appropriate. The forward-looking statements include, without
limitation, statements regarding our belief that international sales could
produce additional sales growth; our expectation to continue to offer sales
incentives and promotion programs in the future; our belief that the Wide Tech
TM
bow design may be incorporated on other Chaparral boat models in subsequent
model years; management’s belief that Marine Products is well positioned to take
advantage of current market conditions which characterize the industry; our
intention to continue seeking the most advantageous purchasing arrangements from
our suppliers; our assumption that our suppliers will remain in operation during
the extended business downturn in the recreational boating industry; our ability
to execute our marketing strategy to increase market share by expanding our
presence by building dedicated sales, marketing and distribution systems; our
intention to continue to strengthen our dealer network and build brand loyalty
with dealers and customers; our ability to locate and complete strategic
acquisitions that will complement our existing product lines, expand our
geographic presence and strengthen our capabilities; our belief that our
corporate infrastructure and marketing and sales capabilities, in addition to
our cost structure and nationwide presence, enable us to compete effectively;
our belief that we do not currently anticipate that any material expenditures
will be required to continue to comply with existing environmental or safety
regulations; our belief that the fall in prices of certain commodities during
the first part of 2009 may lead to lower material costs in 2009; our belief that
our product liability insurance will be adequate; our intention to pursue
acquisitions and form strategic alliances that will enable us to acquire
complementary skills and capabilities, offer new products, expand our customer
base and obtain other competitive advantages; our belief that the ultimate
outcome of litigation arising in the ordinary course of business will not have a
material adverse effect on our liquidity, financial condition or results of
operations; our intention to continue to pay cash dividends; our ability to
execute stated business and financial strategies in the future to better manage
our Company; our belief that there are not any near-term catalysts that will
improve the retail selling environment for our product; our belief that the
weak selling environment and dealer inventory levels may require the Company to
implement additional sales incentive programs designed to sell inventory;
management’s belief that net sales and profits in 2009 will decline compared to
2008; management’s belief that advertising and consumer targeting efforts will
benefit the boating industry and our Company and could result in increased
advertising and other selling and general administrative expenses during 2009;
our belief that the redesign of one of the Chaparral product lines for the 2009
model year will be very popular with dealers and consumers and that the success
of this product should continue to enhance our sales and profits in future
years; management’s belief that both the boating industry promotional
advertising program and the Company’s new boat models will benefit Marine
Products; management’s belief that the industry is projected to remain in a deep
downturn throughout 2009; our belief 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; expectations about the amount of capital expenditures and
contributions to our defined benefit plan during 2009 and the purpose of those
capital expenditures; the adequacy of the Company’s capital resources; the
amount and timing of future contractual obligations; judgments about the
Company’s critical accounting policies; and the effect of various recent
accounting pronouncements on the Company, its operating results and financial
condition. These statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Marine Products Corporation to be materially different from any future results,
performance or achievements expressed or implied in such forward-looking
statements. These risks involve the outcome of current and future litigation,
the impact of interest rates, economic conditions, fuel costs and weather on our
business, our dependence on a network of independent boat dealers, the
possibility of defaults by our dealers in their obligations to third-party
dealer floor plan lenders, and our reliance on third-party suppliers. We caution
you that such statements are only predictions and not guarantees of future
performance and that actual results, developments and business decisions may
differ from those envisioned by the forward-looking statements. See “Risk
Factors” on page 12 for a discussion of factors that may cause actual results to
differ from our projections.


2




Item
      1. Business




Marine
Products manufactures fiberglass motorized boats distributed and marketed
through its independent dealer network. Marine Products’ product offerings
include Chaparral sterndrive and inboard pleasure boats and Robalo outboard
sport fishing boats.




Organization
and Overview




Marine
Products is a Delaware corporation incorporated on August 31, 2000, in
connection with a spin-off from RPC, Inc. (NYSE: RES) (“RPC”). Effective
February 28, 2001, RPC accomplished the spin-off by contributing 100 percent of
the issued and outstanding stock of Chaparral to Marine Products, a newly formed
wholly owned subsidiary of RPC, and then distributing the common stock of Marine
Products to RPC stockholders.




Marine
Products designs, manufactures and sells recreational fiberglass powerboats in
the sportboat, deckboat, cruiser, sport yacht and sport fishing markets. The
Company sells its products to a network of 147 domestic and 46 international
independent authorized dealers. Marine Products’ mission is to enhance its
customers’ boating experience by providing them with high quality, innovative
powerboats. The Company intends to remain a leading manufacturer of recreational
powerboats for sale to a broad range of consumers worldwide.




The
Company manufactures Chaparral sterndrive and inboard-powered pleasure boats
including SSi Sportboats, SSX Sportdecks, Sunesta Wide TechTMand Xtreme boats,
Signature Cruisers, Premiere Sport Yachts and Robalo outboard sport fishing
boats. The most recent available industry statistics [source: Statistical
Surveys, Inc. report dated September 30, 2008] indicate that Chaparral is the
fourth largest manufacturer of 18 to 35 foot sterndrive boats in the United
States.




Chaparral
was founded in 1965 in Ft. Lauderdale, Florida. Chaparral’s first boat was a
15-foot tri-hull design with a retail price of less than $1,000. Over time
Chaparral grew by offering exceptional quality and consumer value. In 1976,
Chaparral moved to Nashville, Georgia, where a manufacturing facility of a
former boat manufacturing company was available for purchase. This provided
Chaparral an opportunity to obtain additional manufacturing space and access to
a trained work force. With over 40 years of boatbuilding experience, Chaparral
continues to improve the design and manufacturing of its product offerings to
meet the growing needs of discriminating recreational boaters.




Robalo
was founded in 1969 and its first boat was a 19-foot center console salt-water
fishing boat, among the first of this type of boat to have an “unsinkable” hull.
The Company believes that Robalo’s share of the outboard sport fishing boat
market is approximately two percent.


3




Products




Marine
Products distinguishes itself by offering a wide range of products to the family
recreational market and cruiser market through its Chaparral brand, and to the
sport fishing market through its Robalo brand.




The following table provides a brief description of our product lines and their
particular market focus:


Product
      Line
              
              Number
                of
                Models
              
              Overall
                Length
              
              Approximate
                Retail
                Price
      Range
              
              DescriptionChaparral
      - SSi Sportboats
              
              11
              
              18′-28′
              
              $22,000
      - $148,000
              
              Fiberglass
      bowriders and closed deck runabouts. Encompasses affordable, entry-level
      to mid-range and larger sportboats. Marketed as high value runabouts for
      family groups.Chaparral
      – SSX Sportdecks
              
              3
              
              24′-28′
              
              $56,000
      - $128,000
              
              Fiberglass
      bowrider crossover sportboats that combine the ride of a sportboat and the
      usefulness of a deckboat. Marketed as high value runabouts for family
      groups.Chaparral
      - Sunesta Wide TechsTM / Xtremes
              
              7
              
              22′-28′
              
              $47,000
      - $128,000
              
              Fiberglass
      pleasure boats with a high-performance hull design and updated styling.
      Wide TechTM is marketed
      as an affordable, entry-level to mid-range pleasure boat with the handling
      of a runabout, the style of a sportboat and the roominess of a cruiser.
      Xtreme is marketed as a high-performance wakeboard/ski boat with technical
      features and styling that appeal to wakeboard and ski
      enthusiasts.Chaparral
      - Signature Cruisers
              
              7
              
              25′-35′
              
              $74,000
      - $371,000
              
              Fiberglass,
      accommodation-focused cruisers. Marketed to experienced boat owners
      through trade magazines and boat show exhibitions.Chaparral
      – Premiere Sport Yacht
              
              1
              
              42′
              
              $615,000
      - $635,000
              
              High
      value, fiberglass sport yacht with Wide TechTM Bow marketed to
      experienced boat owners through trade magazines and boat show
      exhibitions.Robalo
      - Sport Fishing Boats
              
              10
              
              22′-31′
              
              $52,000
      - $274,000
              
              Sport
      fishing boats for large freshwater lakes or saltwater use. Marketed to
      experienced fishermen.




Manufacturing




Marine
Products’ manufacturing facilities are located in Nashville, Georgia and
Valdosta, Georgia. In 2008, the Company temporarily idled its plant located in
Valdosta, Georgia in response to the decline in production during the current
year in comparison to the prior year. Marine Products utilizes five different
plants to, among other things, manufacture interiors, design new models, create
fiberglass hulls and decks, and assemble various end products. Quality control
is conducted throughout the manufacturing process. The Company’s manufacturing
operations are ISO 9001: 2000 certified, which is an international designation
of design, manufacturing, and customer service processes. ISO 9001: 2000
surpasses previous ISO designations. Management believes Chaparral is the third
largest sterndrive boat manufacturing brand to hold the ISO 9001: 2000
certification. When fully assembled and inspected, the boats are loaded onto
either company-owned trailers or third-party marine transport trailers for
delivery to dealers. The manufacturing process begins with the design of a
product to meet dealer and customer needs. Plugs are constructed in the research
and development phase from designs. Plugs are used to create a mold from which
prototype boats can be built. Adjustments are made to the plug design until
acceptable parameters are met. The final plug is used to create the necessary
number of production molds. Molds are used to produce the fiberglass hulls and
decks. Fiberglass components are made by applying the outside finish or gel coat
to the mold, then numerous layers of fiberglass and resin are applied during the
lamination process over the gel coat. After curing, the hull and deck are
removed from the molds and are trimmed and prepared for final assembly, which
includes the installation of electrical and plumbing systems, engines,
upholstery, accessories and graphics.


4




Product
Warranty




For
our Chaparral products, Marine Products provides a lifetime limited structural
hull warranty against defects in material and workmanship for the original
purchaser, and a 10-year limited structural hull warranty for one subsequent
owner. Warranties on additional items are provided for periods of one to five
years. For our Robalo products, Marine Products provides a transferable 10-year
limited structural hull warranty against defects in material and workmanship,
and a transferable one-year limited warranty on other components. The engine
manufacturers for our Robalo and Chaparral products warrant engines included in
the boats as well.




Suppliers




Marine
Products’ two most significant components used in manufacturing its boats, based
on cost, are engines and fiberglass. For each of these, there is currently an
adequate supply available in the market. Marine Products has not experienced any
material shortages in any of these products. Temporary shortages, when they do
occur, usually involve manufacturers switching model mixes or introducing new
product lines. Marine Products obtains most of its fiberglass from a leading
domestic supplier. Marine Products believes that there are several alternative
suppliers if this supplier fails to provide adequate quality or quantities at
acceptable prices.




Marine
Products does not manufacture the engines installed in its boats. Engines are
generally specified by the dealers at the time of ordering, usually on the basis
of anticipated customer preferences or actual customer orders. Sterndrive
engines are purchased through the American Boatbuilders Association (“ABA”),
which has entered into engine supply arrangements with Mercury Marine and Volvo
Penta, the two currently existing suppliers of sterndrive engines. These
arrangements contain incentives and discount provisions, which may reduce the
cost of the engines purchased, if specified purchase volumes are met during
specified periods of time. Although no minimum purchases are required, Marine
Products expects to continue purchasing sterndrive engines through the ABA on a
voluntary basis in order to receive volume-based purchase discounts. Marine
Products does not have a long-term supply contract with the ABA. Marine Products
has an outboard engine supply contract with Yamaha. This engine supply
arrangement was not negotiated through the ABA. In the event of a sudden
interruption in the supply of engines from these suppliers, our sales and
profitability could be negatively impacted. See “Business Strategies”
below.




Marine
Products uses other raw materials in its manufacturing processes. Among these
are stainless steel, copper and resins made from feedstocks. During the first
six months of 2008, the price of these raw materials increased, adversely
affecting our 2008 operating results. See “Inflation” below.




Sales
and Distribution




Sales
are made through approximately 118 Chaparral dealers, 14 Robalo dealers, and 15
dealers that sell both brands located in markets throughout the United States.
Dealers market directly to consumers at boat show exhibitions and in the
dealers’ showrooms. Marine Products also has 46 international dealers. Most of
our dealers inventory and sell boat brands manufactured by other companies,
including some that compete directly with our brands. The territories served by
any dealer are not exclusive to the dealer; however, Marine Products uses
discretion in establishing relationships with new dealers in an effort to
protect the mutual interests of the existing dealers and the Company. Marine
Products’ nine independent field sales representatives call upon existing
dealers and develop new dealer relationships. The field sales representatives
are directed by a National Sales Coordinator, who is responsible for developing
a full dealer distribution network for the Company’s products. The marketing of
boats to retail customers is primarily the responsibility of the dealer. Marine
Products supports dealer marketing efforts by supplementing local advertising,
sales and marketing follow up in boating magazines, and participation in
selected regional, national, and international boat show exhibitions. No single
dealer accounts for more than 10 percent of sales.




Marine
Products continues to seek new dealers in many areas throughout the U.S.,
Europe, South America, Asia, Russia and the Middle East. In general, Marine
Products requires payment in full before it will ship a boat overseas.
Consequently, there is no credit risk associated with its international sales or
risk related to foreign currency fluctuation. Marine Products believes
international sales could produce additional sales growth, although the volume
of sales to international dealers decreased in 2008 compared to 2007 due to
global economic weakness. International sales are also affected by the value of
the U.S. dollar relative to other currencies. International sales were 33.4
percent of total sales in 2008, 23.3 percent of total sales in 2007 and 18.0
percent of total sales in 2006.




Marine
Products’ sales orders are indicators of strong interest from its dealers.
Historically, dealers have in most cases taken delivery of all their orders,
although in the third and fourth quarters of 2008, the frequency of order
cancellations increased due to the increase in consumer uncertainty resulting
from the deepening recession and the turmoil in the financial markets. The
Company attempts to ensure that its dealers do not accept an excessive amount of
inventory by monitoring their inventory levels, so these cancellations were a
factor that influenced Marine Products’ decision to further reduce production
during this time. Knowledge of inventory levels at the individual dealers
facilitates production scheduling with very short lead times in order to
maintain flexibility, in the event that adjustments need to be made to dealer
shipments. In the past, Marine Products has been able to resell any boat for
which the order has been cancelled, although the increase in order cancellations
that occurred during the third and fourth quarters of 2008 caused Marine
Products to decrease production to focus on reselling boats for which orders had
been cancelled.


5




Although
some dealers finance their boat inventory with smaller regional financial
institutions in local markets, the majority of Marine Products’ domestic
shipments are made pursuant to “floor plan financing” programs in which Marine
Products’ subsidiaries participate on behalf of their dealers with major
third-party financing institutions. Historically, and during most of 2008, there
were at least two major floor plan financing institutions, although one of these
institutions announced at the end of 2008 that it would cease floor plan lending
to all unaffiliated dealers including those in the marine industry. Under these
established arrangements with qualified lending institutions, a dealer
establishes a line of credit with one or more of these lenders for the purchase
of boat inventory for sales to retail customers in their show room or during
boat show exhibitions. In general, when a dealer purchases and takes delivery of
a boat pursuant to a floor plan financing arrangement, it draws against its line
of credit and the lender pays the invoice cost of the boat directly to Marine
Products within 10 business days. When the dealer in turn sells the boat to a
retail customer, the dealer repays the lender, thereby restoring its available
credit line. Each dealer’s floor plan credit facilities are secured by the
dealer’s inventory, letters of credit, and perhaps other personal and real
property. Until recently, most dealers maintained financing arrangements with
more than one lender, although that is less common at the present time, given
that there are fewer lenders. In connection with the dealer’s floor plan
financing arrangements with these qualified lending institutions, Marine
Products or its subsidiaries have agreed to repurchase inventory which the
lender repossesses from a dealer and returns to Marine Products in a “like new”
condition. The contractual agreements that Marine Products or its subsidiaries
have with these qualified lenders contain specified limits for the amounts of
these repurchases. In early 2009 one lender has approached Marine Products with
a request to raise this 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 as
presently written expire at the end of the 2009 model year. In the event that a
dealer defaults under a credit line, the qualified lender may then invoke the
manufacturers’ repurchase agreement with respect to that dealer. In that event,
all repurchase agreements of all manufacturers supplying a defaulting dealer are
generally invoked regardless of the boat or boats with respect to which the
dealer has defaulted. As of December 31, 2008, Marine Products’ aggregate
remaining contractual obligation to repurchase boats under these floor plan
financing programs described above was approximately $4.1 million. Unlike Marine
Products’ obligation to repurchase boats repossessed by lenders, Marine Products
is under no obligation to repurchase boats directly from dealers. Marine
Products does not sponsor financing programs to the consumer; any consumer
financing promotions for a prospective boat purchaser would be the
responsibility of the dealer. See “Risk Factors” on page 11 for a discussion of
the potential impact of the ongoing volatility and lack of liquidity in the
financial markets which may impact Marine Products during 2009.




Marine
Products’ dealer sales incentive programs are variously designed to promote
early replenishment of the stock in dealer inventories depleted throughout the
prime spring and summer selling seasons, and to promote the sales of older
models in dealer inventory and particular models during specified periods. These
programs help to stabilize Marine Products’ manufacturing between the peak and
off-peak periods, and promote sales of certain models. For the 2009 model year
(which commenced July 1, 2008), Marine Products offered its dealers several
sales incentive programs based on dollar volumes and timing of dealer purchases.
Program incentives offered include sales discounts, inventory reduction rebates,
and payment of floor plan financing interest charged by qualified floor plan
providers to dealers generally through March 31, 2009. After the interest
payment programs end, interest costs revert to the dealer at rates set by the
lender. A dealer makes periodic curtailment payments (principal payments) on
outstanding obligations against its dealer inventory as set forth in the floor
plan financing agreements between the dealer and their particular
lender.




These
various sales incentives and promotions have resulted in relatively level
month-to-month production and sales. As a result of lower sales during 2008, we
extended our 2008 winter promotions into the 2008 spring and summer selling
seasons. Additionally we have significantly enhanced our incentives in 2009 and
have extended the promotion to include prior year models. Similar sales
incentive and promotion programs have been in effect during the past several
years, and Marine Products expects to continue to offer these types of programs
in the future.




The
sales order backlog was approximately 200 boats with estimated net sales of
approximately $7.8 million as of December 31, 2008. This represents an
approximate nine week backlog based on production levels at December 31, 2008.
As of December 31, 2007, the sales order backlog was approximately 1,300 boats
with estimated net sales of approximately $59 million. The decrease in the sales
order backlog is the result of much lower dealer orders and much lower
production levels compared to the prior year. Based on recent trends the Company
continues to adjust its production levels downward to manage dealer inventory
levels. The Company typically does not manufacture a significant number of boats
for its own inventory. The Company occasionally manufactures boats for its own
inventory because the number of boats required for immediate shipment is not
always the most efficient number of boats to produce in a given production
schedule.


6




Research
and Development




Essentially
the same technologies and processes are used to produce fiberglass boats by all
boat manufacturers. The most common method is open-face molding. This is usually
a labor-intensive, manual process whereby employees hand spray and apply
fiberglass and resin in layers on open molds to create boat hulls, decks and
other smaller fiberglass components. This process can result in inconsistencies
in the size and weight of parts, which may lead to higher warranty costs. A
single open-face mold is typically capable of producing approximately three
hulls per week.




Marine
Products has been a leading innovator in the recreational boating industry. One
of the Company’s most innovative designs is the full-length “Extended V-Plane”
running surface on its Chaparral boat models. Typically, sterndrive boats have a
several foot gap on the bottom rear of the hull where the engine enters the
water. With the Extended V-Plane, the running surface extends the full length to
the rear of the boat. The benefit of this innovation is more deck space, better
planing performance and a more comfortable ride. Although the basic hull designs
are similar, the Company introduces a variety of new models each year and
periodically replaces, updates or discontinues existing models.




Another
hull design is the Hydro LiftTM used on
the Robalo boat models. This variable dead rise hull design provides a smooth
ride in rough conditions. It increases the maximum speed obtainable by a given
engine horsepower and weight of the boat. Robalo’s current models utilize the
Hydro LiftTM design
and we plan to continue to provide this design on Robalo models.




A
bow design known as the Wide TechTMwas
first used on the Chaparral Sunesta Wide TechTM and Xtreme models for the 2008
model year, and was also used on the 400 Premiere Sport Yacht and the SSI Wide
TechTMfor the 2009 model year. The Wide TechTM bow
design allows the models to have the Extended V-Plane hull, with the features
and benefits that this hull design offers. In addition, the Wide TechTM
bow design provides a larger seating area, as well as additional storage
space, in the front of the boat. Furthermore, this bow design allows the models
to have a non-skid walkway on the bow, which makes entering and leaving the boat
easier than in other boat models. The Wide TechTM bow
design may be incorporated on other Chaparral boat models in subsequent model
years.




In
support of its new product development efforts, Marine Products incurred
research and development costs of $1.8 million in 2008, $1.7 million in 2007,
and $1.4 million in 2006.




Industry
Overview




For
2008, the recreational boating industry accounted for less than one percent of
the United States gross domestic product. The recreational marine market is a
mature market, with 2007 (latest data available to us) retail expenditures of
approximately $37.5 billion spent on new and used boats, motors and engines,
trailers, accessories and other associated costs as estimated by the National
Marine Manufacturers Association (“NMMA”). Pleasure boats compete for consumers’
free time with all other leisure activities, from computers and video games to
other outdoor sports. One of the greatest obstacles to continued growth for the
recreational boating industry is consumers’ diminishing leisure
time.




The
NMMA conducts various surveys of pleasure boat industry trends, and the most
recent surveys indicate that 59 million adults in the United States participated
in recreational boating in 2007, an increase of 10.3 percent compared to the
prior year. There are currently approximately 17 million boats owned in the
United States, including outboard, inboard, sterndrive, sailboats, personal
watercraft, and miscellaneous (canoes, kayaks, rowboats, etc.). Marine Products
competes in the sterndrive and inboard boating category with its five lines of
Chaparral boats, and in the outboard boating category with its Robalo sport
fishing boats. More than 90 percent of the Company’s models are sterndrive
boats.




Industry
sales of sterndrive boats in the United States during 2008 totaling 32,402
(source: Info-Link Technologies, Inc.) accounted for approximately 38 percent of
the total new fiberglass powerboats sold that were between 18 and 35 feet in
hull length. Sales of sterndrive boats had an estimated total retail value of
$1.8 billion, or an average retail price per boat of approximately $55,000.
Management believes that the five largest states for boat sales are Florida,
Texas, California, New York and North Carolina. Marine Products has dealers in
each of these states.


7




The
U.S. domestic recreational boating industry includes sales in the segments of
new and used boats, motors and engines, trailers, and other boat accessories.
The new fiberglass boat market segment with hull lengths of 18 to 35 feet, the
primary market segment in which Marine Products competes, represented $4.1
billion in retail sales during 2008. The table below reflects the estimated
sales within this segment by category for 2008 and 2007, ranked by 2008 retail
sales (source: Info-Link Technologies, Inc.):


2008
                    
                    
                    2007Boats
                    
                    
                    Sales
      ($ B)
                    
                    
                    Boats
                    
                    
                    Sales
      ($ B)Sterndrive
      Boats
                    
                    
                    32,402
                    
                    
                    $
                    1.8
                    
                    
                    
                    50,778
                    
                    
                    $
                    2.8Outboard
      Boats
                    
                    
                    39,148
                    
                    
                    
                    1.5
                    
                    
                    
                    56,967
                    
                    
                    
                    2.2Inboard
      Boats
                    
                    
                    9,653
                    
                    
                    
                    0.7
                    
                    
                    
                    13,434
                    
                    
                    
                    1.0Jet
      Boats
                    
                    
                    3,364
                    
                    
                    
                    0.1
                    
                    
                    
                    4,634
                    
                    
                    
                    0.1TOTAL
                    
                    
                    84,567
                    
                    
                    $
                    4.1
                    
                    
                    
                    125,813
                    
                    
                    $
                    6.1




Chaparral’s
products are categorized as sterndrive and inboard boats and Robalo’s products
are categorized as outboard boats.




Although
the recreational boat manufacturing market remains highly fragmented, Brunswick
Corporation and Genmar Holdings, Inc. have acquired a number of recreational
boat manufacturing operations. We estimate that the boat manufacturing industry
includes over 130 sterndrive manufacturers and over 300 outboard boat
manufacturers, largely small, privately held companies with varying degrees of
professional management and manufacturing skill. According to estimates provided
by Statistical Surveys, Inc., during the nine months ended September 30, 2008
(latest information available), the top five sterndrive manufacturers, which
includes Chaparral, have a market share of approximately 54 percent. Chaparral’s
market share in units during the period was 7.5 percent, which represents an
increase of 0.3 percentage points compared to the 12 months ended December 31,
2007. This increase is attributable to Chaparral’s increasing market share of
boats that are 21 to 35 feet in length, a size range in which Chaparral is the
second largest manufacturer. We attribute this increase in market share of this
segment to Chaparral’s long-term strategy of designing, building, and selling
larger boats which carry higher average selling prices. This increase was offset
by Chaparral’s declining market share in the sale of boats that are 18 to 20
feet in length, which we attribute to the strategy of certain manufacturers to
manufacture smaller boats in offshore manufacturing facilities to sell in the
domestic market at a lower price. Also, certain manufacturers have recently
gained market share in smaller boats by selling through non-traditional
retailers such as sporting good stores not located near a recreational
waterway.




Several
factors influence sales trends in the recreational boating industry, including
general economic growth, consumer confidence, household incomes, the
availability and cost of financing for our dealers and customers, weather, fuel
prices, tax laws, demographics and consumers’ leisure time. Also, the value of
residential and vacation real estate in strong boating states such as California
and Florida influences recreational boat sales. In addition, inflation has had
an impact on boat sales in recent years. As the cost of certain raw materials
used in the manufacturing process has increased, the cost of boat ownership
increases as well, which has prompted consumers either to buy a smaller boat or
defer or forego their purchase. Competition from other leisure and recreational
activities, such as vacation properties and travel, can also affect sales of
recreational boats.




Management
believes Marine Products is well positioned to take advantage of the following
conditions, which continue to characterize the industry:


●
            labor-intensive
      manufacturing processes that remain largely
unautomated;●
            increasingly
      strict environmental standards derived from governmental regulations and
      customer sensitivities;●
            a
      lack of focus on coordinated customer service and support by dealers and
      manufacturers;●
            a
      lack of financial strength among retail boat dealers, and at the present
      time, among third-party floor plan lenders; and●
            a
      high degree of fragmentation and competition among the more than 130
      sterndrive and 300 outboard recreational boat
    manufacturers.




Business
Strategies




Recreational
boating is a mature industry. According to Info-Link Technologies,
Inc., sales of sterndrive boats experienced a compound annual decline rate
of approximately 21 percent between 2006 and 2008. During this time, Marine
Products has experienced a compound annual decline rate of approximately 24
percent in the number of boats sold. Marine Products has historically grown its
boat sales and net sales primarily through increasing market share and by
expanding the number of models and product lines. Unit sales declined in 2008
partly due to industry conditions, but also because of Marine Products’ strategy
of building larger boats with higher average selling prices. Chaparral has grown
its sterndrive market share in the 18 to 35 feet length category from 5.9
percent in fiscal 1996 to 7.5 percent during the nine months ended September 30,
2008 (the most recent information provided to us by Statistical Surveys, Inc.).
The Company continues to expand its product offerings in the outboard boat
market, the largest boat market not previously served by the Company’s products,
and by improvement of existing models and expansion into larger boats within its
sterndrive and inboard offerings.


8




During
2008 we reduced our production levels at various times 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. At the end of 2008, our
production levels were significantly lower than the levels during
2007.




Marine
Products’ operating strategy emphasizes innovative designs and manufacturing
processes, by producing a high quality product while seeking to lower
manufacturing costs through increased efficiencies in our facilities. In
addition, we seek opportunities to leverage our buying power through economies
of scale. Management believes its membership in the ABA positions Marine
Products as a significant third-party customer of major suppliers of sterndrive
engines. Marine Products’ Chaparral subsidiary is a founding member of the ABA,
which collectively represents 13 independent boat manufacturers that have formed
a buying group to pool their purchasing power in order to gain improved pricing
on engines, fiberglass, resin and many other components. Marine Products intends
to continue seeking the most advantageous purchasing arrangements from its
suppliers.




Our
marketing strategy seeks to increase market share by enabling Marine Products to
expand its presence by building dedicated sales, marketing and distribution
systems. Marine Products has a distribution network of 193 dealers located
throughout the United States and internationally. Our strategy is to increase
selectively the quantity of our dealers, and work to improve the quality and
effectiveness of our entire dealer network. Marine Products seeks to capitalize
on its strong dealer network by educating its dealers on the sales and servicing
of our products and helping them provide more comprehensive customer service,
with the goal of increasing customer satisfaction, customer retention and future
sales. Marine Products provides promotional and incentive programs to help its
dealers increase product sales and customer satisfaction. Marine Products
intends to continue to strengthen its dealer network and build brand loyalty
with both dealers and customers, although the Company’s efforts to do so during
2008 were adversely impacted by economic conditions affecting both Marine
Products and its dealer network.




As
part of Marine Products’ overall strategy, Marine Products will also consider
making strategic acquisitions in order to complement existing product lines,
expand its geographic presence in the marketplace and strengthen its
capabilities depending upon availability, price and complementary product
lines.




Competition




The
recreational boat industry is highly fragmented, resulting in intense
competition for customers, dealers and boat show exhibition space. There is
significant competition both within markets we currently serve and in new
markets that we may enter. Marine Products’ brands compete with several large
national or regional manufacturers that have substantial financial, marketing
and other resources. However, we believe that our corporate infrastructure and
marketing and sales capabilities, in addition to our cost structure and our
nationwide presence, enable us to compete effectively against these companies.
In each of our markets, Marine Products competes on the basis of responsiveness
to customer needs, the quality and range of models offered, and the competitive
pricing of those models. Additionally, Marine Products faces general competition
from all other recreational businesses seeking to attract consumers’ leisure
time and discretionary spending dollars.




According
to Statistical Surveys, Inc., the following is a list of the top ten (largest to
smallest) sterndrive boat manufacturers in the United States based on unit sales
between 2006 and 2008. Several of these manufacturers are part of larger
integrated boat building companies and are marked with asterisks. According to
Statistical Surveys, Inc., the companies set forth below represent approximately
76 percent of all United States retail sterndrive boat registrations for the
nine months ended September 30, 2008.


1.
              
              Sea
      Ray*2.
              
              Bayliner*3.
              
              Tahoe4.
              
              Chaparral5.
              
              Glastron
      **6.
              
              Four
      Winns **7.
              
              Crownline8.
              
              Cobalt9.
              
              Stingray10.
              
              Larson**




9


The
outboard engine powered market has a large breadth and depth, accounting for
approximately 46 percent of all boats sold during 2008. Robalo’s share of the
outboard sport fishing boat market during the nine months ended September 30,
2008 was approximately two percent. Primary competitors for Robalo during 2008
included Sea-Pro (discontinued production as of July 2008) *, Grady-White, Key
West, Pro-Line, Trophy*, Boston Whaler* and Hydra Sports**.


*
            a
      subsidiary of Brunswick Corporation**
            a
      subsidiary of Genmar Holdings, Inc.




Environmental
and Regulatory Matters




Certain
materials used in boat manufacturing, including the resins used to make the
decks and hulls, are toxic, flammable, corrosive, or reactive and are classified
by the federal and state governments as “hazardous materials.” Control of these
substances is regulated by the Environmental Protection Agency (“EPA”) and state
pollution control agencies, which require reports and inspect facilities to
monitor compliance with their regulations. The Occupational Safety and Health
Administration (“OSHA”) standards limit the amount of emissions to which an
employee may be exposed without the need for respiratory protection or upgraded
plant ventilation. Marine Products’ manufacturing facilities are regularly
inspected by OSHA and by state and local inspection agencies and departments.
Marine Products believes that its facilities comply in all material aspects with
these regulations. Although capital expenditures related to compliance with
environmental laws are expected to increase during the coming years, we do not
currently anticipate that any material expenditure will be required to continue
to comply with existing environmental or safety regulations in connection with
our existing manufacturing facilities.




Recreational
powerboats sold in the United States must be manufactured to meet the standards
of certification required by the United States Coast Guard. In addition, boats
manufactured for sale in the European Community must be certified to meet the
European Community’s imported manufactured products standards. These
certifications specify standards for the design and construction of powerboats.
All boats sold by Marine Products meet these standards. In addition, safety of
recreational boats is subject to federal regulation under the Boat Safety Act of
1971. The Boat Safety Act requires boat manufacturers to recall products for
replacement of parts or components that have demonstrated defects affecting
safety. While Marine Products has instituted recalls for defective component
parts produced by other manufacturers, there has never been a safety related
recall resulting from Marine Products’ design or manufacturing process. None of
the recalls has had a material adverse effect on Marine Products.




The
California Air Resources Board (ARB) in 2007 adopted regulations stipulating
that many marine engines manufactured in 2008 or later meet an air emission
standard that requires fitting a catalytic converter to the engine. The
regulations apply to sterndrive and inboard gasoline engines of less than 500
horsepower, and in 2009 and later, to all sterndrive and inboard gasoline
engines. In addition, the California ARB standard prohibits the purchase of a
boat engine from outside the state of California for use within the state of
California, if such purchase is made to avoid this emission standard, and
requires certification by dealers that engines sold in California meet this
emission standard as well as documentation affixed to the engines that they meet
this standard. The majority of the engines used in Marine Products’ Chaparral
product line sold in California are subject to this regulation. This regulation
will increase the cost of boats subject to it. This cost increase may either
reduce Marine Products’ profitability, because the Company may have to absorb
the increased cost, or reduce Marine Products’ sales in the state of California,
because the increased cost of owning a boat may force consumers to buy a smaller
boat or forgo a boat purchase.




Employees




As
of December 31, 2008, Marine Products had approximately 400 employees (a
reduction from 1,100 at December 31, 2007), of whom six were management and 39
administrative. In response to the significant decline in consumer demand for
our products and lower production, the Company significantly reduced its work
force during 2008 in an effort to align costs with lower sales.




None
of Marine Products’ employees are party to a collective bargaining agreement.
Marine Products’ entire workforce is currently employed in the United States and
Marine Products believes that its relations with its employees are
good.




Proprietary
Matters




Marine
Products owns a number of trademarks, trade names and patents that it believes
are important to its business. Except for the Chaparral, Robalo and Wahoo!
trademarks, however, Marine Products is not dependent upon any single trademark
or trade name or group of trademarks or trade names. The Chaparral, Robalo and
Wahoo! trademarks are currently registered in the United States. The current
duration for such registration ranges from seven to 15 years but each
registration may be renewed an unlimited number of times.




10




Several
of Chaparral’s and Robalo’s designs are protected under the U.S. Copyright
Office’s Vessel Hull Design Protection Act. This law grants an owner of an
original vessel hull design certain exclusive rights. Protection is offered for
hull designs that are made available to the public for purchase provided that
the application is made within two years of the hull design being made public.
As of December 31, 2008, there were 22 Chaparral hull designs and four Robalo
hull designs registered under the Vessel Hull Design Protection
Act.




During
2008 Chaparral was granted a design patent on its Wide TechTM hull design by
the U.S. Patent and Trademark Office. The patent has a term of 14 years, and
protects the Wide TechTM hull currently
used on the Sunesta Wide TechTM and Xtreme, 400
Premiere, and SSi Wide TechTM from being used
by other pleasure boat manufacturers. Marine Products believes that this patent
is important to its business.




Seasonality




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




Inflation




During
2007 and the first and second quarters of 2008 the Company experienced an
increase in certain material and component costs. The Company responded to these
cost increases in the beginning of this period by instituting price increases to
its dealers for the 2008 model year which began on July 1, 2007. These price
increases did not fully absorb the increased material costs during 2007 and
therefore negatively impacted the Company’s gross margin. The Company did not
attempt to institute a similar price increase for the 2009 model year which
began on July 1, 2008, because of low dealer demand. During the third and fourth
quarters of 2008, prices of many of these commodities fell dramatically. In the
first part of 2009, the prices of some of these commodities have stabilized.
This fall in prices may lead to lower materials costs in 2009. However, no
assurance can be given that commodities prices will remain low, or at what
prices 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.




Availability
of Filings




Marine
Products makes available free of charge on its website,
www.marineproductscorp.com, the annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those reports on
the same day as they are filed with the Securities and Exchange
Commission.




Item
1A. Risk Factors




Economic
Conditions, Unavailability of Credit and Consumer Confidence Levels Affect
Marine Products’ Sales Because Marine Products’ Products are Purchased with
Discretionary Income




During an economic recession or when an economic recession is perceived as a
threat, Marine Products will be adversely affected as consumers have less
discretionary income or are more apt to save their discretionary income rather
than spend it. During times of global political or economic uncertainty, Marine
Products will be negatively affected to the extent consumers forego or delay
large discretionary purchases pending the resolution of those uncertainties. 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. Tight lending and credit standards, such as those
currently in use by lenders in the United States, can make loans for boats
harder to secure, and such loans may carry unfavorable terms, which may force
consumers to forgo boat purchases. These factors have also resulted in the past,
and may continue to result in the future, in a reduction in the quality and
number of dealers upon which Marine Products relies to sell its
products.




11




Marine
Products Indirectly Relies upon Third-Party Dealer Floor Plan Lenders Which
Provide Financing to its Network of Independent Dealers




Marine
Products sells its products to a network of independent dealers, most of whom
rely on one or more third-party dealer floor plan lenders to provide financing
for their inventory prior to its sale to retail customers. In general, this
source of financing is vital to Marine Products’ ability to sell products to its
dealer network. During the credit crisis and financial market volatility in late
2008, one large dealer floor plan lender announced that it was ceasing its
lending operations, and another large dealer floor plan lender became very
concerned about dealer inventory levels and dealer defaults on floor plan loans.
These factors may reduce the availability of floor plan loans to our dealers,
increase the cost of financing, or change the limits under which Marine Products
or its subsidiaries are required to repurchase inventory in the event of a
dealer default. Any of these developments would negatively impact Marine
Products sales and profitability.




Interest
Rates and Fuel Prices Affect Marine Products’ Sales




The
Company’s products are often financed by our dealers and the retail boat
consumers. Higher interest rates increase the borrowing costs and, accordingly,
the cost of doing business for dealers and the cost of boat purchases for
consumers. Fuel costs can represent a large portion of the costs to operate our
products. Therefore, higher interest rates and fuel costs can adversely affect
consumers’ decisions relating to recreational boating purchases.




Marine
Products’ Dependence on its Network of Independent Boat Dealers may Affect its
Operating Results and Sales




Virtually
all of Marine Products’ sales are derived from its network of independent boat
dealers. Marine Products has no long-term agreements with these dealers.
Competition for dealers among recreational powerboat manufacturers continues to
increase based on the quality of available products, the price and value of the
products, and attention to customer service. The Company faces intense
competition from other recreational powerboat manufacturers in attracting and
retaining independent boat dealers. The number of independent boat dealers
supporting the Chaparral and Robalo trade names and the quality of their
marketing and servicing efforts are essential to Marine Products’ ability to
generate sales. A deterioration in the number or quality of Marine Products’
network of independent boat dealers which occurred during 2008, has had and
could continue to have a material adverse effect on its boat sales. Marine
Products’ inability to attract new dealers and retain those dealers, or its
inability to increase sales with existing dealers, could substantially impair
its ability to execute its business plans.




Although
Marine Products’ management believes that the quality of its products and
services in the recreational boating market should permit it to maintain its
relationship with its dealers and its market position, there can be no assurance
that Marine Products will be able to sustain its current sales levels. In
addition, independent dealers in the recreational boating industry have
experienced significant consolidation in recent years, which could result in the
loss of one or more of Marine Products’ dealers in the future if the surviving
entity in any such consolidation purchases similar products from a Marine
Products competitor. During 2008, some boat dealers included within the Marine
Products’ dealer network ceased operations and this trend may continue given the
current adverse business environment in which boat dealers operate. See
“Business Strategies” above.




Marine
Products’ Financial Condition and Operating Results may be Adversely Affected by
Boat Dealer Defaults




The
Company’s products are sold through dealers and the financial health of these
dealers is critical to the Company’s continued success. The Company’s results
can be negatively affected if a dealer defaults because Marine Products or its
subsidiaries are required to repurchase inventory up to certain limits in the
event of a dealer default.




Marine Products’ Ability to Adjust
its Business Operations to Compensate for Reduced Sales of Boats may be
Restricted in the Future.




During
2008 Marine Products idled certain production facilities and reduced its number
of employees to offset the impact that reduced net sales has on the Company’s
operating results and cash flows. As the Company reduces its production, the
Company experiences lower rates of absorption of its fixed costs and thus
experiences lower profit margins. In addition, the Company’s ability to reduce
its fixed costs is limited. A prolonged downturn in the Company’s sale of
boats may have a larger adverse effect on Marine Products in future periods than
occurred in 2008.




Marine
Products’ Sales are Affected by Weather Conditions




Marine
Products’ business is subject to weather patterns that may adversely affect its
sales. For example, drought conditions, or merely reduced rainfall levels, or
excessive rain, may close area boating locations or render boating dangerous or
inconvenient, thereby curtailing customer demand for our products. In addition,
unseasonably cool weather and prolonged winter conditions may lead to a shorter
selling season in some locations. Hurricanes and other storms could cause
disruptions of our operations or damage to our boat inventories and docking
facilities.




12




Marine
Products Encounters Intense Competition Which Affects our Sales and
Profits




The
recreational boat industry is highly fragmented, resulting in intense
competition for customers, dealers and boat show exhibition space. This
competition affects both the markets which we currently serve and new markets
that we may enter in the future. We compete with several large national or
regional manufacturers that have substantial financial, marketing and other
resources. Competitive manufacturers have executed a strategy of constructing
entry-level smaller boats which are constructed in off-shore manufacturing
plants with lower labor costs. These competitive conditions have contributed to
our inability to pass along our increased manufacturing costs to customers,
reduced our market share in various selling categories including particularly
smaller boats, and negatively impacted our profit margins.




Marine
Products has Potential Liability for Personal Injury and Property Damage
Claims




The
products we sell or service may expose Marine Products to potential liabilities
for personal injury or property damage claims relating to the use of those
products. Historically, the resolution of product liability claims has not
materially affected Marine Products’ business. Marine Products maintains product
liability insurance that it believes to be adequate. However, there can be no
assurance that Marine Products will not experience legal claims in excess of its
insurance coverage or that claims will be covered by insurance. Furthermore, any
significant claims against Marine Products could result in negative publicity,
which could cause Marine Products’ sales to decline.




Because
Marine Products Relies on Third-party Suppliers, Marine Products may be Unable
to Obtain Adequate Raw Materials and Components




Marine
Products is dependent on third-party suppliers to provide raw materials and
components essential to the construction of its various powerboats. Especially
critical are the availability and cost of marine engines and commodity raw
materials used in the manufacture of Marine Products’ boats. While Marine
Products’ management believes that supplier relationships currently in place are
sufficient to provide the materials necessary to meet present production
demands, there can be no assurance that these relationships will continue, that
these suppliers will remain in operation given the extended business downturn in
the recreational boating industry or that the quantity or quality of materials
available from these suppliers will be sufficient to meet Marine Products’
future needs. Disruptions in current supplier relationships or the inability of
Marine Products to continue to purchase construction materials in sufficient
quantities and of sufficient quality at acceptable prices to meet ongoing
production schedules could cause a decrease in sales or a sharp increase in the
cost of goods sold. Additionally, because of this dependence, the volatility in
commodity raw materials or current or future price increases in construction
materials or the inability of Marine Products’ management to purchase
construction materials required to complete its growth and acquisition
strategies could cause a reduction in Marine Products’ profit margins or reduce
the number of powerboats Marine Products may be able to produce for
sale.




Marine
Products may be Unable to Identify, Complete or Successfully Integrate
Acquisitions




Marine
Products intends to pursue acquisitions and form strategic alliances that will
enable Marine Products to acquire complementary skills and capabilities, offer
new products, expand its customer base, and obtain other competitive advantages.
There can be no assurance, however, that Marine Products will be able to
successfully identify suitable acquisition candidates or strategic partners,
obtain financing on satisfactory terms, complete acquisitions or strategic
alliances, integrate acquired operations into its existing operations, or expand
into new markets. Once integrated, acquired operations may not achieve
anticipated levels of sales or profitability, or otherwise perform as expected.
Acquisitions also involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
resources, and possible adverse effects on earnings and earnings per share
resulting from increased interest costs, the issuance of additional securities,
and difficulties related to the integration of the acquired business. The
failure to integrate acquisitions successfully may divert management’s attention
from Marine Products’ existing operations and may damage Marine Products’
relationships with its key customers and suppliers.




Marine
Products’ Success will Depend on its key Personnel, and the Loss of any key
Personnel may Affect its Powerboat Sales




Marine
Products’ success will depend to a significant extent on the continued service
of key management personnel. The loss or interruption of the services of any
senior management personnel or the inability to attract and retain other
qualified management, sales, marketing and technical employees could disrupt
Marine Products’ operations and cause a decrease in its sales and profit
margins.




13




Marine
Products’ Ability to Attract and Retain Qualified Employees is Crucial to its
Results of Operations and Future Growth




Marine
Products relies on the existence of an available hourly workforce to manufacture
its products. As with many businesses, we are challenged at times to find
qualified employees. There are no assurances that Marine Products will be able
to attract and retain qualified employees to meet current and/or future growth
needs.




If
Marine Products is Unable to Comply with Environmental and Other Regulatory
Requirements, its Business may be Exposed to Liability and Fines




Marine
Products’ operations are subject to extensive regulation, supervision, and
licensing under various federal, state, and local statutes, ordinances, and
regulations. While Marine Products believes that it maintains all requisite
licenses and permits and is in compliance with all applicable federal, state and
local regulations, there can be no assurance that Marine Products will be able
to continue to maintain all requisite licenses and permits and comply with
applicable laws and regulations. The failure to satisfy these and other
regulatory requirements could cause Marine Products to incur fines or penalties
or could increase the cost of operations. The adoption of additional laws, rules
and regulations could also increase Marine Products’ costs.




California
recently adopted regulations setting emission standards affecting boat engines
sold or, under certain circumstances, used in California. This regulation will
increase the cost of boats subject to the regulation, which may either reduce
the Company’s profitability or reduce sales. Emission standards of this type may
be implemented nationwide by 2010.




As
with boat construction in general, our manufacturing processes involve the use,
handling, storage and contracting for recycling or disposal of hazardous or
toxic substances or wastes. Accordingly, we are subject to regulations regarding
these substances, and the misuse or mishandling of such substances could expose
Marine Products to liability or fines.




Additionally,
certain states have required or are considering requiring a license in order to
operate a recreational boat. While such licensing requirements are not expected
to be unduly restrictive, regulations may discourage potential first-time
buyers, thereby reducing future sales.




Marine
Products’ Stock Price has been Volatile




Historically,
the market price of common stock of companies engaged in the discretionary
consumer products industry has been highly volatile. Likewise, the market price
of our common stock has varied significantly in the past. In addition, the
availability of Marine Products common stock to the investing public is limited
to the extent that shares are not sold by the executive officers, directors and
their affiliates, which could negatively impact the trading price of Marine
Products’ common stock, increase volatility and affect the ability of minority
stockholders to sell their shares. Future sales by executive officers, directors
and their affiliates of all or a substantial portion of their shares could also
negatively affect the trading price of Marine Products’ common
stock.




Marine
Products’ Reduction of its Dividends Payable on Common Shares may Reduce the
Return on Investment in Marine Products’ Stock




In
January 2009, the Company reduced its cash dividend per common share from an
annual rate of $0.26 per share to $0.04 per share, and the Company may in the
future further reduce its dividend. The reduced dividend rate may adversely
affect the stockholders’ return on investment in the Company’s
shares.




Marine
Products’ Management has a Substantial Ownership Interest; Public Stockholders
may have no Effective Voice in Marine Products’ Management




The
Company has elected the “Controlled Corporation” exemption under Rule 303A of
the New York Stock Exchange (“NYSE”) Company Guide. The Company is a “Controlled
Corporation” because a group that includes the Company’s Chairman of the Board,
R. Randall Rollins and his brother, Gary W. Rollins, who is also a director of
the Company, and certain companies under their control, controls in excess of
fifty percent of the Company’s voting power. As a “Controlled Corporation,” the
Company need not comply with certain NYSE rules including those requiring a
majority of independent directors.




Marine
Products’ executive officers, directors and their affiliates hold directly or
through indirect beneficial ownership, in the aggregate, approximately 73
percent of Marine Products’ outstanding shares of common stock. As a result,
these stockholders effectively control the operations of Marine Products,
including the election of directors and approval of significant corporate
transactions such as acquisitions. This concentration of ownership could also
have the effect of delaying or preventing a third-party from acquiring control
of Marine Products at a premium.




14




Provisions
in Marine Products’ Certificate of Incorporation and Bylaws may Inhibit a
Takeover of Marine Products




Marine
Products’ certificate of incorporation, bylaws and other documents contain
provisions including advance notice requirements for shareholder proposals and
staggered terms of office for the Board of Directors. These provisions may make
a tender offer, change in control or takeover attempt that is opposed by Marine
Products’ Board of Directors more difficult or expensive.




The
Insurance Companies that Insure a Number of Marine Products’ Marketable
Securities have been Downgraded, Which may Cause Volatility in the Market Prices
of our Marketable Securities




Marine
Products maintains a diversified portfolio of investment-grade municipal debt
securities managed by a large, well-capitalized financial institution. A number
of these securities are insured by large insurance companies. The credit ratings
of these insurance companies have been downgraded over the past several years,
which prompted rating agencies to downgrade the ratings of many of these
securities, although all of these securities still have credit ratings that are
within our investment policy guidelines. However, this uncertainty and these
credit rating downgrades increase the volatility of the market prices of these
marketable securities. The market prices of these securities may continue to be
volatile during periods of uncertainty in the bond insurance
industry.




Item 1B. Unresolved Staff
Comments




None.




Item
2. Properties




Marine
Products’ corporate offices are located in Atlanta, Georgia. These offices are
currently shared with RPC and are leased. The monthly rent paid is allocated
between Marine Products and RPC. Under this arrangement, Marine Products pays
approximately $2,060 per month in rent. Marine Products may cancel this
arrangement at any time after giving a 30 day notice.




Chaparral
owns and maintains approximately 1,011,000 square feet of space utilized for
manufacturing, research and development, warehouse, and sales office and
operations in Nashville, Georgia. In addition, the Company leases 83,000 square
feet of manufacturing space at the Robalo facility in Valdosta, Georgia, under a
long-term arrangement expiring in 2014. During the fourth quarter of 2008, the
Robalo facility was temporarily idled and production of these boats were
moved to the Nashville facility. There are no plans or current intentions to
dispose of the facilities in Valdosta, Georgia. The Company also leases 111,000
square feet of warehouse space in Nashville, Georgia under a long-term
arrangement expiring in 2018. Marine Products’ total square footage under roof
is allocated as follows: manufacturing — 712,000, research and development —
67,200, warehousing — 294,500, office and other — 131,400.




Item
3. Legal Proceedings




Marine
Products is involved in litigation from time to time in the ordinary course of
its business. Marine Products does not believe that the ultimate outcome of such
litigation will have a material adverse effect on its liquidity, financial
condition or results of operations.




Item
4. Submission of Matters to a Vote of Security Holders




There
were no matters submitted to a vote of security holders during the fourth
quarter of 2008.




15




Item
4A. Executive Officers of the Registrant




Each
of the executive officers of Marine Products was elected by the Board of
Directors to serve until the Board of Directors’ meeting immediately following
the next annual meeting of stockholders or until his or her earlier removal by
the Board of Directors or his or her resignation. The following table lists the
executive officers of Marine Products and their ages, offices, and date first
elected to office.


Name
      and Office with Registrant
            
            Age
            
            Date
      First Elected
              to
      Present OfficeR.
      Randall Rollins (1)
            
            
            77
            
            
            2/28/01Chairman
      of the BoardRichard
      A. Hubbell (2)
            
            
            64
            
            
            2/28/01President
      and Chief Executive OfficerJames
      A. Lane, Jr. (3)
            
            
            66
            
            
            2/28/01Executive
      Vice President and President of Chaparral Boats, Inc.Linda
      H. Graham (4)
            
            
            72
            
            
            2/28/01Vice
      President and SecretaryBen
      M. Palmer (5)
            
            
            48
            
            
            2/28/01Vice
      President, Chief Financial Officer and Treasurer




(1)
              R.
      Randall Rollins began working for Rollins, Inc. (consumer services) in
      1949. At the time of the spin-off of RPC from Rollins, in 1984, Mr.
      Rollins was elected Chairman of the Board and Chief Executive Officer of
      RPC. He remains Chairman of RPC and stepped down from the position of
      Chief Executive Officer effective April 22, 2003. He has served as
      Chairman of the Board of Marine Products since February 2001 and Chairman
      of the Board of Rollins, Inc. since October 1991. He is also a director of
      Dover Downs Gaming and Entertainment, Inc. and Dover Motorsports,
      Inc.(2)
              Richard
      A. Hubbell has been the President and Chief Executive Officer of Marine
      Products since it was spun off in February 2001. He has also been the
      President of RPC since 1987 and its Chief Executive Officer since April
      22, 2003. Mr. Hubbell serves on the Board of Directors for both of these
      companies.(3)
              James
      A. Lane, Jr., has held the position of President of Chaparral Boats
      (formerly a subsidiary of RPC) since 1976. Mr. Lane has been Executive
      Vice President and Director of Marine Products since it was spun off in
      2001. He is also a director of RPC and has served in that capacity since
      1987.(4)
              Linda
      H. Graham has been Vice President and Secretary of Marine Products since
      it was spun off in 2001, and Vice President and Secretary of RPC since
      1987. Ms. Graham serves on the Board of Directors for both of these
      companies.(5)
              Ben
      M. Palmer has been Vice President, Chief Financial Officer and Treasurer
      of Marine Products since it was spun off in 2001 and has served the same
      roles at RPC since 1996.


16


PART
II




Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities




Marine
Products’ common stock is listed for trading on the New York Stock Exchange
under the symbol “MPX.” At February 13, 2009, there were 36,902,490 shares of
common stock outstanding.




At
the close of business on February 13, 2009, there were approximately 2,600
holders of record of the Company’s common stock. The high and low prices of
Marine Products’ common stock and dividends paid for each quarter in the years
ended December 31, 2008 and 2007 were as follows:


2008
                                                                  
                                                                  
                                                                  2007Quarter
                                                                  
                                                                  High
                                                                  
                                                                  
                                                                  Low
                                                                  
                                                                  
                                                                  Dividends
                                                                  
                                                                  
                                                                  High
                                                                  
                                                                  
                                                                  Low
                                                                  
                                                                  
                                                                  DividendsFirst
                                                                  
                                                                  $
                                                                  9.23
                                                                  
                                                                  
                                                                  $
                                                                  6.49
                                                                  
                                                                  
                                                                  $
                                                                  0.065
                                                                  
                                                                  
                                                                  $
                                                                  11.89
                                                                  
                                                                  
                                                                  $
                                                                  9.10
                                                                  
                                                                  
                                                                  $
                                                                  0.06Second
                                                                  
                                                                  
                                                                  8.53
                                                                  
                                                                  
                                                                  
                                                                  6.56
                                                                  
                                                                  
                                                                  
                                                                  0.065
                                                                  
                                                                  
                                                                  
                                                                  9.79
                                                                  
                                                                  
                                                                  
                                                                  7.68
                                                                  
                                                                  
                                                                  
                                                                  0.06Third
                                                                  
                                                                  
                                                                  9.75
                                                                  
                                                                  
                                                                  
                                                                  6.05
                                                                  
                                                                  
                                                                  
                                                                  0.065
                                                                  
                                                                  
                                                                  
                                                                  9.62
                                                                  
                                                                  
                                                                  
                                                                  7.96
                                                                  
                                                                  
                                                                  
                                                                  0.06Fourth
                                                                  
                                                                  
                                                                  8.65
                                                                  
                                                                  
                                                                  
                                                                  3.58
                                                                  
                                                                  
                                                                  
                                                                  0.065
                                                                  
                                                                  
                                                                  
                                                                  9.13
                                                                  
                                                                  
                                                                  
                                                                  6.45
                                                                  
                                                                  
                                                                  
                                                                  0.06




At
the January 27, 2009 Board of Directors’ Meeting, the Board approved a decrease
in the quarterly cash dividend per common share from $0.065 to $0.01. 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.




Issuer
Purchases of Equity Securities




In
accordance with actions by the Company’s Board of Directors, an aggregate of
8,850,000 shares have been authorized for repurchase in connection with a stock
buy back program announced in 2001, and subsequent increases to this program
announced in 2005 and January 2008. These programs do not have predetermined
expiration dates. A total of 4,925,157 shares have been repurchased in the open
market under these programs as of December 31, 2008, including 76,500 shares
during 2008. There were no shares repurchased during the fourth quarter of 2008.
As of December 31, 2008, a total of 3,324,843 shares remain available for
repurchase under these programs.




Performance
Graph




The
following graph shows a five-year comparison of the cumulative total stockholder
return based on the performance of the stock of the Company, assuming dividend
reinvestment, as compared with both a broad equity market index and an industry
or peer group index. The indices included in the following graph are the Russell
2000 Index (“Russell 2000”) and a peer group which includes companies that are
considered peers of the Company (“Peer Group”). The companies included in the
peer group have been weighted according to each respective issuer’s stock market
capitalization at the beginning of each year. The companies are Brunswick
Corporation and MarineMax, Inc.




The
Russell 2000 is used because the Company became a component of the Russell 2000
in 2004, and because the Russell 2000 is a stock index representing small
capitalization U.S. stocks. During 2008 the components of the Russell 2000 had
an average market capitalization of $887 million.




17




The
graph below assumes the value of $100.00 invested on December 31,
2003.







18




Item
6. Selected Financial Data




The
following table summarizes certain selected financial data of Marine Products.
The historical information may not be indicative of Marine Products’ future
results of operations. The information set forth below should be read in
conjunction with “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and the Consolidated Financial Statements and the
notes thereto included elsewhere in this document.


Years
      Ended December 31,(In
      thousands, except share, per share and employee data)2008
                                                              
                                                              
                                                              2007
                                                              
                                                              
                                                              2006
                                                              
                                                              
                                                              2005
                                                              
                                                              
                                                              2004Statement
      of Income Data:Net
      sales
                                                              
                                                              $
                                                              175,622
                                                              
                                                              
                                                              $
                                                              244,273
                                                              
                                                              
                                                              $
                                                              261,378
                                                              
                                                              
                                                              $
                                                              272,057
                                                              
                                                              
                                                              $
                                                              252,418Cost
      of goods sold
                                                              
                                                              
                                                              143,677
                                                              
                                                              
                                                              
                                                              191,810
                                                              
                                                              
                                                              
                                                              201,971
                                                              
                                                              
                                                              
                                                              202,936
                                                              
                                                              
                                                              
                                                              186,832Gross
      profit
                                                              
                                                              
                                                              31,945
                                                              
                                                              
                                                              
                                                              52,463
                                                              
                                                              
                                                              
                                                              59,407
                                                              
                                                              
                                                              
                                                              69,121
                                                              
                                                              
                                                              
                                                              65,586Selling,
      general and administrative expenses
                                                              
                                                              
                                                              23,146
                                                              
                                                              
                                                              
                                                              30,228
                                                              
                                                              
                                                              
                                                              32,474
                                                              
                                                              
                                                              
                                                              33,557
                                                              
                                                              
                                                              
                                                              29,810Operating
      income
                                                              
                                                              
                                                              8,799
                                                              
                                                              
                                                              
                                                              22,235
                                                              
                                                              
                                                              
                                                              26,933
                                                              
                                                              
                                                              
                                                              35,564
                                                              
                                                              
                                                              
                                                              35,776Interest
      income
                                                              
                                                              
                                                              2,420
                                                              
                                                              
                                                              
                                                              2,590
                                                              
                                                              
                                                              
                                                              2,502
                                                              
                                                              
                                                              
                                                              1,330
                                                              
                                                              
                                                              
                                                              590Income
      before income taxes
                                                              
                                                              
                                                              11,219
                                                              
                                                              
                                                              
                                                              24,825
                                                              
                                                              
                                                              
                                                              29,435
                                                              
                                                              
                                                              
                                                              36,894
                                                              
                                                              
                                                              
                                                              36,366Income
      tax provision
                                                              
                                                              
                                                              3,633
                                                              
                                                              
                                                              
                                                              8,402
                                                              
                                                              
                                                              
                                                              9,121
                                                              
                                                              
                                                              
                                                              10,671
                                                              
                                                              
                                                              
                                                              12,623Net
      income
                                                              
                                                              $
                                                              7,586
                                                              
                                                              
                                                              $
                                                              16,423
                                                              
                                                              
                                                              $
                                                              20,314
                                                              
                                                              
                                                              $
                                                              26,223
                                                              
                                                              
                                                              $
                                                              23,743Earnings
      per share:Basic
                                                              
                                                              $
                                                              0.21
                                                              
                                                              
                                                              $
                                                              0.44
                                                              
                                                              
                                                              $
                                                              0.54
                                                              
                                                              
                                                              $
                                                              0.69
                                                              
                                                              
                                                              $
                                                              0.62Diluted
                                                              
                                                              $
                                                              0.21
                                                              
                                                              
                                                              $
                                                              0.43
                                                              
                                                              
                                                              $
                                                              0.52
                                                              
                                                              
                                                              $
                                                              0.65
                                                              
                                                              
                                                              $
                                                              0.58Dividends
      paid per share
                                                              
                                                              $
                                                              0.26
                                                              
                                                              
                                                              $
                                                              0.24
                                                              
                                                              
                                                              $
                                                              0.20
                                                              
                                                              
                                                              $
                                                              0.16
                                                              
                                                              
                                                              $
                                                              0.11Other
      Financial and Operating Data:Gross
      profit margin percent
                                                              
                                                              
                                                              18.2
                                                              %
                                                              
                                                              
                                                              21.5
                                                              %
                                                              
                                                              
                                                              22.7
                                                              %
                                                              
                                                              
                                                              25.4
                                                              %
                                                              
                                                              
                                                              26.0
                                                              %Operating
      margin percent
                                                              
                                                              
                                                              5.0
                                                              %
                                                              
                                                              
                                                              9.1
                                                              %
                                                              
                                                              
                                                              10.3
                                                              %
                                                              
                                                              
                                                              13.1
                                                              %
                                                              
                                                              
                                                              14.2
                                                              %Net
      cash provided by operating activities
                                                              
                                                              $
                                                              14,045
                                                              
                                                              
                                                              $
                                                              16,431
                                                              
                                                              
                                                              $
                                                              23,997
                                                              
                                                              
                                                              $
                                                              19,366
                                                              
                                                              
                                                              $
                                                              29,405Net
      cash (used for) provided by investing activities
                                                              
                                                              
                                                              (2,255
                                                              )
                                                              
                                                              
                                                              (41,391
                                                              )
                                                              
                                                              
                                                              1,351
                                                              
                                                              
                                                              
                                                              (2,023
                                                              )
                                                              
                                                              
                                                              (1,924
                                                              )Net
      cash used for financing activities
                                                              
                                                              
                                                              (10,401
                                                              )
                                                              
                                                              
                                                              (26,263
                                                              )
                                                              
                                                              
                                                              (8,494
                                                              )
                                                              
                                                              
                                                              (26,356
                                                              )
                                                              
                                                              
                                                              (7,110
                                                              )Capital
      expenditures
                                                              
                                                              $
                                                              329
                                                              
                                                              
                                                              $
                                                              1,263
                                                              
                                                              
                                                              $
                                                              1,667
                                                              
                                                              
                                                              $
                                                              1,118
                                                              
                                                              
                                                              $
                                                              2,838Employees
      at end of year
                                                              
                                                              
                                                              441
                                                              
                                                              
                                                              
                                                              1,073
                                                              
                                                              
                                                              
                                                              1,089
                                                              
                                                              
                                                              
                                                              1,065
                                                              
                                                              
                                                              
                                                              1,187Factory
      and administrative space at end of year (square ft.)
                                                              
                                                              
                                                              1,205
                                                              
                                                              
                                                              
                                                              1,205
                                                              
                                                              
                                                              
                                                              1,149
                                                              
                                                              
                                                              
                                                              1,149
                                                              
                                                              
                                                              
                                                              1,146Balance
      Sheet Data at end of year:Cash
      and cash equivalents
                                                              
                                                              $
                                                              4,622
                                                              
                                                              
                                                              $
                                                              3,233
                                                              
                                                              
                                                              $
                                                              54,456
                                                              
                                                              
                                                              $
                                                              37,602
                                                              
                                                              
                                                              $
                                                              46,615Marketable
      securities — current
                                                              
                                                              
                                                              8,799
                                                              
                                                              
                                                              
                                                              8,870
                                                              
                                                              
                                                              
                                                              652
                                                              
                                                              
                                                              
                                                              1,323
                                                              
                                                              
                                                              
                                                              132Marketable
      securities — non-current
                                                              
                                                              
                                                              37,953
                                                              
                                                              
                                                              
                                                              36,087
                                                              
                                                              
                                                              
                                                              3,715
                                                              
                                                              
                                                              
                                                              5,893
                                                              
                                                              
                                                              
                                                              6,202Inventories
                                                              
                                                              
                                                              22,453
                                                              
                                                              
                                                              
                                                              33,159
                                                              
                                                              
                                                              
                                                              29,556
                                                              
                                                              
                                                              
                                                              26,856
                                                              
                                                              
                                                              
                                                              25,869Working
      capital
                                                              
                                                              
                                                              32,992
                                                              
                                                              
                                                              
                                                              36,113
                                                              
                                                              
                                                              
                                                              76,506
                                                              
                                                              
                                                              
                                                              61,341
                                                              
                                                              
                                                              
                                                              61,989Property,
      plant and equipment, net
                                                              
                                                              
                                                              14,579
                                                              
                                                              
                                                              
                                                              15,944
                                                              
                                                              
                                                              
                                                              16,641
                                                              
                                                              
                                                              
                                                              17,252
                                                              
                                                              
                                                              
                                                              18,362Total
      assets
                                                              
                                                              
                                                              110,293
                                                              
                                                              
                                                              
                                                              118,726
                                                              
                                                              
                                                              
                                                              124,179
                                                              
                                                              
                                                              
                                                              108,805
                                                              
                                                              
                                                              
                                                              109,734Total
      stockholders’ equity
                                                              
                                                              $
                                                              90,789
                                                              
                                                              
                                                              $
                                                              93,757
                                                              
                                                              
                                                              $
                                                              101,401
                                                              
                                                              
                                                              $
                                                              87,688
                                                              
                                                              
                                                              $
                                                              87,372


19




Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations




The
following discussion is based upon and should be read in conjunction with
“Selected Financial Data” 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.


20




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.


21




Results
of Operations


Years
      ended December 31,($’s
      in thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Total
      number of boats sold
                    
                    
                    3,590
                    
                    
                    
                    5,444
                    
                    
                    
                    6,245Average
      gross selling price per boat
                    
                    $
                    46.6
                    
                    
                    $
                    43.4
                    
                    
                    $
                    41.1Net
      sales
                    
                    $
                    175,622
                    
                    
                    $
                    244,273
                    
                    
                    $
                    261,378Percentage
      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
                    
                    
                    $
                    26,933Warranty
      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.


22




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
                    
                    
                    2006Net
      cash provided by operating activities
                    
                    $
                    14,045
                    
                    
                    $
                    16,431
                    
                    
                    $
                    23,997Net
      cash (used for) provided by investing activities
                    
                    
                    (2,255
                    )
                    
                    
                    (41,391
                    )
                    
                    
                    1,351Net
      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).


23




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 periodContractual
      Obligations
                    
                    Total
                    
                    
                    Less
                      than
      1
                      year
                    
                    
                    1-3
                      years
                    
                    
                    3-5
                      years
                    
                    
                    More
                      than
      5 yearsLong-term
      debt
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Capital
      lease obligation
                    
                    
                    275,455
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    275,455Operating
      leases (1)
                    
                    
                    1,480,825
                    
                    
                    
                    150,282
                    
                    
                    
                    311,736
                    
                    
                    
                    304,435
                    
                    
                    
                    714,372Purchase
      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.


24




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 significant
judgment by management in selecting the appropriate assumptions for calculating
accounting estimates. These judgments are based on our historical experience,
terms of existing contracts, trends in the industry, and information available
from other outside sources, as appropriate. Senior management has discussed the
development, selection and disclosure of its critical accounting estimates with
the Audit Committee of our Board of Directors. The Company believes that, of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.


25




Sales
recognition - The Company sells its boats through its network of independent
dealers. Sales orders used to plan production are firm indications of interest
from dealers and are cancelable at any time, although historically very few
orders are cancelled after they have been placed. The Company recognizes sales
when all the following conditions are met: (1) a fully executed sales agreement
exists, (2) the price of the boat is established, (3) the dealer takes delivery
of the boat, and (4) collectibility of the sales price is reasonably
assured.




Sales
incentives and discounts - The Company records incentives as a reduction of
sales. Using historical trends, adjusted for current changes, the Company
estimates the amount of incentives that will be paid in the future on boats sold
and accrues an estimated liability. The Company offers various incentives that
promote sales to dealers, and to a lesser extent, retail customers. These
incentives are designed to encourage timely replenishment of dealer inventories
after peak selling seasons, stabilize manufacturing volumes throughout the year,
and improve production model mix. The dealer incentive programs are a
combination of annual volume commitment discounts, and additional discounts at
time of invoice for those dealers who do not finance their inventory through
specified floor plan financing agreements. The annual dealer volume discounts
are primarily based on July 1 through June 30 model year purchases. In addition,
the Company offers at various times other time-specific or model-specific
incentives. The retail incentive programs have historically been used during
off-peak selling seasons in addition to the winter boat exhibition
shows.




The
factors that complicate the calculation of the cost of these incentives are the
ability to forecast sales of the Company and individual dealers, the volume and
timing of inventory financed by specific dealers, identification of which boats
have been sold subject to an incentive, and the estimated lag time between sales
and payment of incentives. Settlement of the incentives generally occurs from
three to twelve months after the sale. The Company regularly analyzes the
historical incentive trends and makes adjustments to recorded liabilities for
changes in trends and terms of incentive programs. Total incentives as a
percentage of gross sales were 13.3 percent in 2008, 13.1 percent in 2007, and
13.3 percent in 2006. A 0.25 percentage point change in incentives as a
percentage of gross sales during 2008 would have increased or decreased net
sales, gross margin and operating income by approximately $0.4
million.




Warranty
costs -The Company records as part of selling, general and administrative
expense an experience based estimate of the future warranty costs to be incurred
when sales are recognized. The Company evaluates its warranty obligation on a
model year basis. The Company provides warranties against manufacturing defects
for various components of the boats, primarily the fiberglass deck and hull,
with warranty periods extending up to 10 years. Warranty costs, if any, on other
components of the boats are generally absorbed by the original component
manufacturer. Warranty costs can vary depending upon the size and number of
components in the boats sold, the pre-sale warranty claims, and the desired
level of customer service. While we focus on high quality manufacturing programs
and processes, including actively monitoring the quality of our component
suppliers and managing the dealer and customer service warranty experience and
reimbursements, our estimated warranty obligation is based upon the warranty
terms and the Company’s enforcement of those terms over time, defects, repair
costs, and the volume and mix of boat sales. The estimate of warranty costs is
regularly analyzed and is adjusted based on several factors including the actual
claims that occur. Warranty expense as a percentage of net sales was 1.8 percent
in 2008, 2.0 percent in 2007, and 2.6 percent in 2006. Warranty expense as
a percentage of net sales decreased in 2008 compared to 2007 because of
favorable trends in claims during 2008. A 0.10 percentage point increase in the
estimated warranty expense as a percentage of net sales during 2008 would have
increased selling, general and administrative expenses and reduced operating
income by approximately $0.2 million.




Income
taxes - The effective income tax rates were 32.4 percent in 2008, 33.8 percent
in 2007, and 30.9 percent in 2006. The effective tax rates vary due to changes
in estimates of future taxable income, fluctuations in the tax jurisdictions in
which the earnings and deductions are realized, variations in the relationship
of tax-exempt income or losses to income before taxes and favorable or
unfavorable adjustments to estimated tax liabilities related to proposed or
probable assessments. As a result, the effective tax rate may fluctuate
significantly on a quarterly or annual basis.




The
Company establishes a valuation allowance against the carrying value of deferred
tax assets when it is determined that it is more likely than not that the asset
will not be realized through future taxable income. Such amounts are charged to
earnings in the period the determination is made. Likewise, if it is later
determined that it is more likely than not that the net deferred tax assets
would be realized, the applicable portion of the previously provided valuation
allowance is reversed. The Company considers future market growth, forecasted
earnings, future taxable income, the mix of earnings in the jurisdictions in
which the Company operates, and prudent and feasible tax planning strategies in
determining the need for a valuation allowance.




The
Company calculates the current and deferred tax provision based on estimates and
assumptions that could differ from the actual results reflected in income tax
returns filed during the subsequent year. Adjustments based on filed returns are
recorded when identified, which is generally in the third quarter of the
subsequent year for U.S. federal and state provisions. Deferred tax liabilities
and assets are determined based on the differences between the financial and tax
bases of assets and liabilities using enacted tax rates in effect in the year
the differences are expected to reverse.


26




The
amount of income taxes the Company pays is subject to ongoing audits by federal
and state tax authorities, which often result in proposed assessments. Our
estimate for the potential outcome for any uncertain tax issue is highly
judgmental. The Company believes it has adequately provided for any reasonably
foreseeable outcome related to these matters. However, future results may
include favorable or unfavorable adjustments to estimated tax liabilities in the
period the assessments are made or resolved or when statutes of limitation on
potential assessments expire. Additionally, the jurisdictions in which earnings
or deductions are realized may differ from current estimates.




Impact
of Recent Accounting Pronouncements




In
December 2008, the FASB issued FASB Staff Position (FSP) FAS 132R-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets.” The FASB issued the FSP,
which amends FASB Statement 132R, Employers’ Disclosures about
Pensions and Other Postretirement Benefits, in order to provide adequate
transparency about the types of assets and associated risks in employers’
postretirement plans. Disclosures are designed to provide an understanding of
how investment decisions are made: the major categories of plan assets; the
inputs and valuation techniques used to measure the fair value of plan assets;
the effect of fair value measurements using significant unobservable inputs
(Level 3 measurements in FASB Statement 157, Fair Value Measurements) on changes
in plan assets for the period; and significant concentrations of risk within
plan assets The disclosures about plan assets required by this FSP are required
to be provided for fiscal years ending after December 15, 2009, with the
provisions of this FSP not required for earlier periods that are presented for
comparative purposes, upon initial application. Earlier application of the
provisions of this FSP is permitted. The Company is currently in the process of
determining the additional disclosures required upon the adoption of this
FSP.




In
October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active.” FSP 157-3 clarifies the application of SFAS No. 157, “Fair Value Measurements,” in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP stipulates that
determining fair value in a dislocated market depends on the facts and
circumstances and may require the use of significant judgment when evaluating
individual transactions or broker quotes which are some of the sources of the
fair value measurement. In addition, FSP FAS 157-3 states that if an entity uses
its own assumptions to determine fair value, it must include appropriate risk
adjustments that market participants would make for nonperformance and liquidity
risks. FSP FAS 157-3 is effective upon issuance, including prior periods for
which financial statements have not been issued. The Company adopted FSP FAS
157-3 in the third quarter of 2008 and has concluded that it does not have a
material effect on its consolidated financial statements.




In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures
about Credit Derivatives and Certain Guarantees – An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161.” This FSP amends FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a hybrid
instrument. This FSP also amends FASB Interpretation No.(FIN) 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” to require an additional disclosure about the
current status of the payment/performance risk of a guarantee. Further this FSP
clarifies the FASB’s intent about the effective date of FASB Statement No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities.” The Company has adopted the
provisions of this FSP for the year ended December 31, 2008. Refer to “Off
Balance Sheet Arrangements” on page 24 for information regarding the status of
the payment/performance risk of the guarantees.




In
June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” to
clarify that all outstanding unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents, whether paid or
unpaid, are participating securities. An entity must include participating
securities in its calculation of basic and diluted earnings per share (EPS)
pursuant to the two-class method, as described in FASB Statement 128, Earnings
per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. The Company
intends to adopt FSP EITF 03-6-1 effective January 1, 2009 and apply its
provisions retrospectively to all prior-period EPS data presented in its
financial statements. The Company has periodically issued share-based payment
awards that contain non-forfeitable rights to dividends and does not expect the
adoption of this accounting guidance to have a material effect on its
consolidated financial statements or EPS.




In
April 2008, the FASB issued FSP FAS No. 142-3, which amends the
factors that must be considered in developing renewal or extension assumptions
used to determine the useful life over which to amortize the cost of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” The FSP requires an entity that is estimating the useful life of
a recognized intangible asset to consider its historical experience in renewing
or extending similar arrangements or, in the absence of historical experience,
must consider assumptions that market participants would use about renewal or
extension that are both consistent with the asset’s highest and best use and
adjusted for entity-specific factors under SFAS No. 142. The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The Company does not expect the adoption of FSP FAS No. 142-3 to have a
material effect on its consolidated financial statements.


27




In
May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in financial statements that are presented in conformity
with U.S. generally accepted accounting principles for nongovernmental entities.
This Statement became effective on November 15, 2008. The Company does not
expect the adoption of this statement to have a material effect on its
consolidated financial statements.




In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments
and Hedging Activities - an Amendment of FASB Statement 133.” SFAS161 requires
enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. Statement 161 is effective for fiscal years and
interim periods beginning after November 15, 2008 with early application being
encouraged. The Company does not have any derivative instruments nor is it
currently involved in hedging activities and therefore adoption of SFAS 161 is
not expected to have a material impact on the Company’s consolidated financial
statements.




In
February 2008, the FASB issued FSP FAS 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13,” and FSP FAS 157-2, “Effective Date of FASB Statement No.
157.” These FSPs:


●
            Exclude
      certain leasing transactions accounted for under FASB Statement No. 13,
      Accounting for
      Leases, from the scope of Statement 157. The exclusion does not
      apply to fair value measurements of assets and liabilities recorded as a
      result of a lease transaction but measured pursuant to other
      pronouncements within the scope of Statement 157.●
            Defer
      the effective date in FASB Statement No. 157, Fair Value
      Measurements, for one year for certain nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair value in the financial statements on a recurring basis (at least
      annually).




FSP FAS
157-1 is effective upon the initial adoption of Statement 157. FSP FAS 157-2 is
effective February 12, 2008. The Company has adopted the provisions of FSP 157-1
and 157-2 in the first quarter of 2008.




Item
7A. Quantitative and Qualitative Disclosures About Market Risk




Marine
Products holds no derivative financial instruments which could expose Marine
Products to significant market risk. Marine Products maintains an investment
portfolio, comprised primarily of municipal debt securities, which are subject
to interest rate risk exposure. This risk is managed through conservative
policies to invest in high-quality obligations. Marine Products has performed an
interest rate sensitivity analysis using a duration model over the near term
with a 10 percent change in interest rates. Marine Products’ portfolio is not
subject to material interest rate risk exposure based on this analysis. Marine
Products does not expect any material changes in market risk exposures or how
those risks are managed.


28




MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




To the
Stockholders of Marine Products Corporation:




The
management of Marine Products Corporation is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company.
Marine Products Corporation maintains a system of internal accounting controls
designed to provide reasonable assurance, at a reasonable cost, that assets are
safeguarded against loss or unauthorized use and that the financial records are
adequate and can be relied upon to produce financial statements in accordance
with accounting principles generally accepted in the United States of America.
The internal control system is augmented by written policies and procedures, an
internal audit program and the selection and training of qualified personnel.
This system includes policies that require adherence to ethical business
standards and compliance with all applicable laws and regulations.




There
are inherent limitations to the effectiveness of any controls system. A controls
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the controls system are met.
Also, no evaluation of controls can provide absolute assurance that all control
issues and any instances of fraud, if any, within the Company will be detected.
Further, the design of a controls system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. The Company intends to continually improve and refine its
internal controls.




Under
the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operations of our internal
control over financial reporting, as of December 31, 2008 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management’s assessment is that Marine Products Corporation maintained effective
internal control over financial reporting as of December 31, 2008.




The
independent registered public accounting firm, Grant Thornton LLP, has audited
the consolidated financial statements as of and for the year ended December 31,
2008, and has also issued their report on the effectiveness of the Company’s
internal control over financial reporting, included in this report on page
30.




/s/
      Richard
      A. Hubbell
            
            /s/
      Ben
      M. PalmerRichard
      A. Hubbell
            
            Ben
      M. PalmerPresident
      and Chief Executive Officer
            
            Chief
      Financial Officer and Treasurer





Atlanta,
      GeorgiaMarch
      3, 2009


29




Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting


Board
      of Directors and StockholdersMarine
      Products Corporation




We have
audited Marine Products Corporation’s (a Delaware Corporation) and subsidiaries
(the “Company”) internal control over financial reporting as of December 31,
2008 based on criteria established in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control—Integrated Frameworkissued by COSO.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company
as of December 31,2008 and 2007, and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2008 and
our report dated March 3, 2009 expressed an unqualified opinion on those
consolidated financial statements.


/s/ Grant
      ThorntonLLPAtlanta,
      GeorgiaMarch
      3, 2009


30




Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements


Board
      of Directors and StockholdersMarine
      Products Corporation




We have
audited the accompanying consolidated balance sheets of Marine Products
Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2008. Our audits of the basic consolidated
financial statements included the financial statement schedule listed in the
index appearing under Item 15. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2008 and 2007, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2008 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.




As
described in Note 7 to the consolidated financial statements, the Company
adopted the provisions of Financial Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement 109” during
2007. As described in Note 10 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” during 2006.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and our report dated March 3, 2009 expressed an
unqualified opinion thereon.


/s/ Grant Thornton LLPAtlanta,
      GeorgiaMarch
      3, 2009


31




Item
8. Financial Statements and Supplementary Data




CONSOLIDATED
BALANCE SHEETS


MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES


(in
thousands except share information)


December
      31,
                                                                          
                                                                          2008
                                                                          
                                                                          
                                                                          2007ASSETSCash
      and cash equivalents
                                                                          
                                                                          $
                                                                          4,622
                                                                          
                                                                          
                                                                          $
                                                                          3,233Marketable
      securities
                                                                          
                                                                          
                                                                          8,799
                                                                          
                                                                          
                                                                          
                                                                          8,870Accounts
      receivable, net
                                                                          
                                                                          
                                                                          5,575
                                                                          
                                                                          
                                                                          
                                                                          3,540Inventories
                                                                          
                                                                          
                                                                          22,453
                                                                          
                                                                          
                                                                          
                                                                          33,159Income
      taxes receivable
                                                                          
                                                                          
                                                                          2,464
                                                                          
                                                                          
                                                                          
                                                                          1,321Deferred
      income taxes
                                                                          
                                                                          
                                                                          1,116
                                                                          
                                                                          
                                                                          
                                                                          2,746Prepaid
      expenses and other current assets
                                                                          
                                                                          
                                                                          1,681
                                                                          
                                                                          
                                                                          
                                                                          2,159Current
      assets
                                                                          
                                                                          
                                                                          46,710
                                                                          
                                                                          
                                                                          
                                                                          55,028Property,
      plant and equipment, net
                                                                          
                                                                          
                                                                          14,579
                                                                          
                                                                          
                                                                          
                                                                          15,944Goodwill
                                                                          
                                                                          
                                                                          3,308
                                                                          
                                                                          
                                                                          
                                                                          3,308Other
      intangibles, net
                                                                          
                                                                          
                                                                          465
                                                                          
                                                                          
                                                                          
                                                                          465Marketable
      securities
                                                                          
                                                                          
                                                                          37,953
                                                                          
                                                                          
                                                                          
                                                                          36,087Deferred
      income taxes
                                                                          
                                                                          
                                                                          2,934
                                                                          
                                                                          
                                                                          
                                                                          1,098Other
      assets
                                                                          
                                                                          
                                                                          4,344
                                                                          
                                                                          
                                                                          
                                                                          6,796Total
      assets
                                                                          
                                                                          
                                                                          110,293
                                                                          
                                                                          
                                                                          $
                                                                          118,726LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilitiesAccounts
      payable
                                                                          
                                                                          $
                                                                          1,437
                                                                          
                                                                          
                                                                          $
                                                                          4,621Accrued
      expenses and other liabilities
                                                                          
                                                                          
                                                                          12,281
                                                                          
                                                                          
                                                                          
                                                                          14,294Current
      liabilities
                                                                          
                                                                          
                                                                          13,718
                                                                          
                                                                          
                                                                          
                                                                          18,915Pension
      liabilities
                                                                          
                                                                          
                                                                          5,285
                                                                          
                                                                          
                                                                          
                                                                          5,572Other
      long-term liabilities
                                                                          
                                                                          
                                                                          501
                                                                          
                                                                          
                                                                          
                                                                          482Total
      liabilities
                                                                          
                                                                          
                                                                          19,504
                                                                          
                                                                          
                                                                          
                                                                          24,969Commitments
      and contingenciesStockholders’
      EquityPreferred
      stock, $0.10 par value, 1,000,000 shares authorized, none
      issued
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          —Common
      stock, $0.10 par value, 74,000,000 shares authorized, issued and
      outstanding – 36,425,449 shares in 2008, 36,017,736 shares in
      2007
                                                                          
                                                                          
                                                                          3,643
                                                                          
                                                                          
                                                                          
                                                                          3,602Capital
      in excess of par value
                                                                          
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          
                                                                          —Retained
      earnings
                                                                          
                                                                          
                                                                          88,535
                                                                          
                                                                          
                                                                          
                                                                          90,105Accumulated
      other comprehensive (loss) income
                                                                          
                                                                          
                                                                          (1,389
                                                                          )
                                                                          
                                                                          
                                                                          50Total
      stockholders’ equity
                                                                          
                                                                          
                                                                          90,789
                                                                          
                                                                          
                                                                          
                                                                          93,757Total
      liabilities and stockholders’ equity
                                                                          
                                                                          $
                                                                          110,293
                                                                          
                                                                          
                                                                          $
                                                                          118,726




The
accompanying notes are an integral part of these statements.


32




CONSOLIDATED
STATEMENTS OF OPERATIONS


MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES


(in
thousands except per share data)


Years
      ended December 31,
                                                        
                                                        2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006Net
      sales
                                                        
                                                        $
                                                        175,622
                                                        
                                                        
                                                        $
                                                        244,273
                                                        
                                                        
                                                        $
                                                        261,378Cost
      of goods sold
                                                        
                                                        
                                                        143,677
                                                        
                                                        
                                                        
                                                        191,810
                                                        
                                                        
                                                        
                                                        201,971Gross
      profit
                                                        
                                                        
                                                        31,945
                                                        
                                                        
                                                        
                                                        52,463
                                                        
                                                        
                                                        
                                                        59,407Selling,
      general and administrative expenses
                                                        
                                                        
                                                        23,146
                                                        
                                                        
                                                        
                                                        30,228
                                                        
                                                        
                                                        
                                                        32,474Operating
      income
                                                        
                                                        
                                                        8,799
                                                        
                                                        
                                                        
                                                        22,235
                                                        
                                                        
                                                        
                                                        26,933Interest
      income
                                                        
                                                        
                                                        2,420
                                                        
                                                        
                                                        
                                                        2,590
                                                        
                                                        
                                                        
                                                        2,502Income
      before income taxes
                                                        
                                                        
                                                        11,219
                                                        
                                                        
                                                        
                                                        24,825
                                                        
                                                        
                                                        
                                                        29,435Income
      tax provision
                                                        
                                                        
                                                        3,633
                                                        
                                                        
                                                        
                                                        8,402
                                                        
                                                        
                                                        
                                                        9,121Net
      income
                                                        
                                                        $
                                                        7,586
                                                        
                                                        
                                                        $
                                                        16,423
                                                        
                                                        
                                                        $
                                                        20,314EARNINGS
      PER SHAREBasic
                                                        
                                                        $
                                                        0.21
                                                        
                                                        
                                                        $
                                                        0.44
                                                        
                                                        
                                                        $
                                                        0.54Diluted
                                                        
                                                        
                                                        0.21
                                                        
                                                        
                                                        $
                                                        0.43
                                                        
                                                        
                                                        $
                                                        0.52Dividends
      paid per share
                                                        
                                                        $
                                                        0.26
                                                        
                                                        
                                                        $
                                                        0.24
                                                        
                                                        
                                                        $
                                                        0.20




The
accompanying notes are an integral part of these statements.


33




CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITYMARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES(in
      thousands)
  Three
      Years Ended
                                                                                                                                                  December
      31, 2008
                                                                                                                                                
                                                                                                                                                Comprehensive

                                                                                                                                                  Income
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                CommonStock
                                                                                                                                                  SharesAmount
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Capital
      in Excess
      of Par
      Value
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Retained
      Earnings
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Deferred
      Compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Accumulated

                                                                                                                                                  Other
                                                                                                                                                  Comprehensive
                                                                                                                                                  Income
      (Loss)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                TotalBalance,
      December 31, 2005
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                37,698
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                3,770
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                16,364
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                72,192
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (3,540
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (1,098
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                87,688Stock
      issued for stock incentive plans, net
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                381
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                38
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                434
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                472Stock
      purchased and retired
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (171
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (17
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,615
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,632
                                                                                                                                                )Net
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                20,314
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                20,314
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                20,314Minimum
      pension liability adjustment, net of taxes
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                344
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                344
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                344Unrealized
      gain on securities, net of taxes and reclassification
      adjustments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                36
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                36
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                36Comprehensive
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                20,694Dividends
      declared
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (7,631
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (7,631
                                                                                                                                                )Stock-based
      compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,514
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,514Excess
      tax benefits for share-based payments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                296
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                296Adoption
      of SFAS 123(R)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (3,540
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3,540
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —Balance,
      December 31, 2006
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                37,908
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3,791
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                13,453
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                84,875
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (718
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                101,401Stock
      issued for stock incentive plans, net
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                407
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                41
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                286
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                327Stock
      purchased and retired
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (2,297
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (230
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (15,694
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (2,182
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (18,106
                                                                                                                                                )Net
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                16,423
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                16,423
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                16,423Pension
      adjustment, net of taxes
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                476
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                476
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                476Unrealized
      gain on securities, net of taxes and reclassification
      adjustments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                292
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                292
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                292Comprehensive
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                17,191Dividends
      declared
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (9,011
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (9,011
                                                                                                                                                )Stock-based
      compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,524
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,524Excess
      tax benefits for share-based payments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                431
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                431Balance,
      December 31, 2007
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                36,018
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                3,602
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                90,105
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                50
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                93,757Stock
      issued for stock incentive plans, net
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                862
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                87
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,949
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2,036Stock
      purchased and retired
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (455
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (46
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (4,011
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                286
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (3,771
                                                                                                                                                )Net
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                7,586
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                7,586
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                7,586Pension
      adjustment, net of taxes
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,345
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,345
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,345
                                                                                                                                                )Unrealized
      loss on securities, net of taxes and reclassification
      adjustments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (94
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (94
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (94
                                                                                                                                                )Comprehensive
      income
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                6,147Dividends
      declared
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (9,442
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (9,442
                                                                                                                                                )Stock-based
      compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,440
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,440Excess
      tax benefits for share-based payments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                622
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                622Balance,
      December 31, 2008
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                36,425
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                3,643
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                88,535
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                —
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (1,389
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                90,789
  The
accompanying notes are an integral part of these statements.
  34
  CONSOLIDATED
      STATEMENTS OF CASH FLOWSMARINE
      PRODUCTS CORPORATION AND SUBSIDIARIES(in
      thousands)
 
 Years
      ended December 31,
                                                              
                                                              2008
                                                              
                                                              
                                                              2007
                                                              
                                                              
                                                              2006OPERATING
      ACTIVITIESNet
      income
                                                              
                                                              $
                                                              7,586
                                                              
                                                              
                                                              $
                                                              16,423
                                                              
                                                              
                                                              $
                                                              20,314Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      expense
                                                              
                                                              
                                                              1,694
                                                              
                                                              
                                                              
                                                              1,950
                                                              
                                                              
                                                              
                                                              2,130Gain
      on sale of equipment and property
                                                              
                                                              
                                                              (14
                                                              )
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —Stock-based
      compensation expense
                                                              
                                                              
                                                              1,440
                                                              
                                                              
                                                              
                                                              1,524
                                                              
                                                              
                                                              
                                                              1,514Excess
      tax benefits for share-based payments
                                                              
                                                              
                                                              (622
                                                              )
                                                              
                                                              
                                                              (431
                                                              )
                                                              
                                                              
                                                              (296
                                                              )Deferred
      income tax provision (benefit)
                                                              
                                                              
                                                              431
                                                              
                                                              
                                                              
                                                              331
                                                              
                                                              
                                                              
                                                              (737
                                                              )(Increase)
      decrease in assets:Accounts
      receivable
                                                              
                                                              
                                                              (2,035
                                                              )
                                                              
                                                              
                                                              (560
                                                              )
                                                              
                                                              
                                                              682Inventories
                                                              
                                                              
                                                              10,706
                                                              
                                                              
                                                              
                                                              (3,603
                                                              )
                                                              
                                                              
                                                              (2,700
                                                              )Prepaid
      expenses and other current assets
                                                              
                                                              
                                                              478
                                                              
                                                              
                                                              
                                                              (286
                                                              )
                                                              
                                                              
                                                              (530
                                                              )Income
      taxes receivable
                                                              
                                                              
                                                              (521
                                                              )
                                                              
                                                              
                                                              (56
                                                              )
                                                              
                                                              
                                                              1,990Other
      non-current assets
                                                              
                                                              
                                                              1,286
                                                              
                                                              
                                                              
                                                              (1,052
                                                              )
                                                              
                                                              
                                                              (603
                                                              )Increase
      (decrease) in liabilities:Accounts
      payable
                                                              
                                                              
                                                              (3,184
                                                              )
                                                              
                                                              
                                                              1,166
                                                              
                                                              
                                                              
                                                              (6
                                                              )Other
      accrued expenses
                                                              
                                                              
                                                              (2,013
                                                              )
                                                              
                                                              
                                                              660
                                                              
                                                              
                                                              
                                                              2,043Other
      long-term liabilities
                                                              
                                                              
                                                              (1,187
                                                              )
                                                              
                                                              
                                                              365
                                                              
                                                              
                                                              
                                                              196Net
      cash provided by operating activities
                                                              
                                                              
                                                              14,045
                                                              
                                                              
                                                              
                                                              16,431
                                                              
                                                              
                                                              
                                                              23,997INVESTING
      ACTIVITIESCapital
      expenditures
                                                              
                                                              
                                                              (329
                                                              )
                                                              
                                                              
                                                              (1,263
                                                              )
                                                              
                                                              
                                                              (1,667
                                                              )Proceeds
      from sale of assets
                                                              
                                                              
                                                              14
                                                              
                                                              
                                                              
                                                              10
                                                              
                                                              
                                                              
                                                              113Sales
      and maturities of marketable securities
                                                              
                                                              
                                                              46,024
                                                              
                                                              
                                                              
                                                              32,437
                                                              
                                                              
                                                              
                                                              8,829Purchases
      of marketable securities
                                                              
                                                              
                                                              (47,964
                                                              )
                                                              
                                                              
                                                              (72,575
                                                              )
                                                              
                                                              
                                                              (5,924
                                                              )Net
      cash (used for) provided by investing activities
                                                              
                                                              
                                                              (2,255
                                                              )
                                                              
                                                              
                                                              (41,391
                                                              )
                                                              
                                                              
                                                              1,351FINANCING
      ACTIVITIESPayment
      of dividends
                                                              
                                                              
                                                              (9,442
                                                              )
                                                              
                                                              
                                                              (9,011
                                                              )
                                                              
                                                              
                                                              (7,631
                                                              )Cash
      paid for common stock purchased and retired
                                                              
                                                              
                                                              (1,619
                                                              )
                                                              
                                                              
                                                              (17,818
                                                              )
                                                              
                                                              
                                                              (1,337
                                                              )Excess
      tax benefits for share-based payments
                                                              
                                                              
                                                              622
                                                              
                                                              
                                                              
                                                              431
                                                              
                                                              
                                                              
                                                              296Proceeds
      received upon exercise of stock options
                                                              
                                                              
                                                              38
                                                              
                                                              
                                                              
                                                              135
                                                              
                                                              
                                                              
                                                              178Net
      cash used for financing activities
                                                              
                                                              
                                                              (10,401
                                                              )
                                                              
                                                              
                                                              (26,263
                                                              )
                                                              
                                                              
                                                              (8,494
                                                              )Net
      increase (decrease) in cash and cash equivalents
                                                              
                                                              
                                                              1,389
                                                              
                                                              
                                                              
                                                              (51,223
                                                              )
                                                              
                                                              
                                                              16,854Cash
      and cash equivalents at beginning of year
                                                              
                                                              
                                                              3,233
                                                              
                                                              
                                                              
                                                              54,456
                                                              
                                                              
                                                              
                                                              37,602Cash
      and cash equivalents at end of year
                                                              
                                                              $
                                                              4,622
                                                              
                                                              
                                                              $
                                                              3,233
                                                              
                                                              
                                                              $
                                                              54,456
  The
accompanying notes are an integral part of these statements.
  35
 
 Notes
      to Consolidated Financial StatementsMarine
      Products Corporation and SubsidiariesYears
      ended December 31, 2008, 2007 and
2006
  NOTE 1: SIGNIFICANT ACCOUNTING
POLICIES
  Basis
of Consolidation and Presentation— The consolidated financial statements
include the accounts of Marine Products Corporation (a Delaware corporation) and
its wholly owned subsidiaries (“Marine Products” or the “Company”). Marine
Products, through Chaparral Boats, Inc. (“Chaparral”) and Robalo Acquisition
Company LLC (“Robalo”), operates as a manufacturer of fiberglass powerboats and
related products and services to a broad range of consumers
worldwide.
  The
consolidated financial statements included herein may not necessarily be
indicative of the future results of operations, financial position and cash
flows of Marine Products.
  The
Company has only one reportable segment — its Powerboat Manufacturing business.
The Company’s results of operations and its financial condition are not
significantly reliant upon any single customer or product model. Net sales from
the Company’s international dealers were approximately $59,000,000 in 2008,
$57,000,000 in 2007, and $47,000,000 in 2006.
  Nature
of Operations— Marine Products is principally engaged in manufacturing
powerboats and providing related products and services. Marine Products
distributes fiberglass recreational boats through a network of domestic and
international independent dealers.
  Common
Stock— Marine Products is authorized to issue 74,000,000 shares of
common stock, $0.10 par value. Holders of common stock are entitled to receive
dividends when, as, and if declared by our Board of Directors out of legally
available funds. Each share of common stock is entitled to one vote on all
matters submitted to a vote of stockholders. Holders of common stock do not have
cumulative voting rights. In the event of any liquidation, dissolution or
winding up of the Company, holders of common stock are entitled to ratable
distribution of the remaining assets available for distribution to
stockholders.
  Preferred
Stock—Marine Products is
authorized to issue up to 1,000,000 shares of preferred stock, $0.10 par value.
As of December 31, 2008, there were no shares of preferred stock issued. The
Board of Directors is authorized, subject to any limitations prescribed by law,
to provide for the issuance of preferred stock as a class without series or, if
so determined from time to time, in one or more series, and by filing a
certificate pursuant to the applicable laws of the state of Delaware and to fix
the designations, powers, preferences and rights, exchangeability for shares of
any other class or classes of stock. Any preferred stock to be issued could rank
prior to the common stock with respect to dividend rights and rights on
liquidation.
  Share
Repurchases— The Company records the cost of share repurchases in
stockholders’ equity as a reduction to common stock to the extent of par value
of the shares acquired and the remainder is allocated to capital in excess of
par value or retained earnings if capital in excess of par value is
eliminated.
  Dividend— The Board of Directors, at their quarterly meeting on January 27, 2009,
declared a quarterly dividend of $0.01 per common share payable March 10, 2009
to stockholders of record at the close of business on February 10,
2009.
  Use
of Estimates in the Preparation of Financial Statements— The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates
are used in the determination of sales incentives and discounts, warranty costs,
costs associated with repurchase obligations and income taxes.
  Sales
Recognition— Marine Products recognizes sales when a fully executed
agreement exists, prices are established, products are delivered to the dealer
in the case of domestic dealers and collectibility is reasonably assured. See
“Deferred revenue” below for recognition of sales to international
dealers.
  Deferred
Revenue— Marine Products requires payment from international dealers
prior to shipment of products to these dealers. Amounts received from
international dealers toward the purchase of boats are categorized as deferred
revenue and recognized as sales when the products are shipped.
  36
 
 Notes
      to Consolidated Financial StatementsMarine
      Products Corporation and SubsidiariesYears
      ended December 31, 2008, 2007 and
2006
  Shipping
and Handling Charges— The shipping and handling of the Company’s
products to dealers is handled through a combination of third-party marine
transporters and a company owned fleet of delivery trucks. Fees charged to
customers for shipping and handling are included in net sales in the
accompanying consolidated statements of operations; the related costs incurred
by the Company are included in cost of goods sold.
  Advertising— Advertising expenses are charged to expense during the period in which
they are incurred. Expenses associated with product brochures and other
inventoriable marketing materials are deferred and amortized over the related
model year which approximates the consumption of these materials. As of December
31, 2008 and 2007, the Company had approximately $297,000 and $524,000 in
prepaid expenses related to the unamortized product brochure costs. Advertising
expenses totaled approximately $2,421,000 in 2008, $2,490,000 in 2007, and
$2,789,000 in 2006.
  Sales
Incentives and Discounts— Sales incentives including dealer discounts
and retail sales promotions are provided for and recorded as a reduction in
sales for the period in which the related sales are recorded. The Company
records the estimated cost of these incentives at the later of the recognition
of the related sales or the announcement of a promotional program.
  Cash
and Cash Equivalents— Highly liquid investments with original maturities
of three months or less are classified as cash equivalents.
  Marketable
Securities— Marine Products maintains investments at a large,
well-capitalized financial institution. Marine Products’ investment policy does
not allow investment in any securities rated less than “investment grade” by
national rating services.
  Management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designations as of each balance sheet date. Debt
securities are classified as available-for-sale because the Company does not
have the intent to hold the securities to maturity. Available-for-sale
securities are stated at their fair values, with the unrealized gains and
losses, net of tax, reported as a separate component of stockholders’ equity.
The cost of securities sold is based on the specific identification method.
Realized gains and losses, declines in value judged to be other than temporary,
interest and dividends on available-for-sale securities are included in interest
income. Realized gains (losses) on marketable securities totaled $425,000 in
2008, $51,000 in 2007, and $(36,000) in 2006. Of the total gains (losses)
realized, reclassification from other comprehensive income totaled approximately
$425,000 in 2008, $(35,000) in 2007, and $(25,000) in 2006. The fair value and
the unrealized gains (losses) of the available-for-sale securities are as
follows:
 December
      31,
                  
                  2008
                  
                  2007Type
      of Securities
                  
                  Fair
      Value
                  
                  Unrealized
                    Gain
      (Loss)
                  
                  Fair
      Value
                  
                  Unrealized
                    Gain
      (Loss)Municipal
      Obligations
                  
                  $
                  46,752,000
                  
                  $
                  260,000
                  
                  $
                  44,957,000
                  
                  $
                  405,000
  Municipal
obligations consist primarily of municipal notes rated A1/P1 or higher.
Investments with remaining maturities of less than 12 months are considered to
be current marketable securities. Investments with remaining maturities greater
than 12 months are considered to be non-current marketable securities. The
Company’s non-current marketable securities are scheduled to mature between 2009
and 2013.
  Accounts
Receivable —The majority of the Company’s accounts receivable are due
from dealers located in markets throughout the Unites States. Most of Marine
Products’ domestic shipments are made pursuant to “floor plan financing”
programs in which Marine Products’ subsidiaries participate on behalf of their
dealers with various major third-party financing institutions. Under these
arrangements, a dealer establishes lines of credit with one or more of these
third-party lenders for the purchase of boat inventory for sales to retail
customers in their show room or during boat show exhibitions. When a dealer
purchases and takes delivery of a boat pursuant to a floor plan financing
arrangement, it draws against its line of credit and the lender pays the invoice
cost of the boat directly to Marine Products within approximately 10 business
days. The Company determines its allowance for doubtful accounts by considering
a number of factors, including the length of time trade accounts receivable are
past due, the Company’s previous loss history, the customer’s current ability to
pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes-off accounts receivable when they
become uncollectible, and payments subsequently received on such receivables are
credited to the allowance.
  37
 
 Notes
      to Consolidated Financial StatementsMarine
      Products Corporation and SubsidiariesYears
      ended December 31, 2008, 2007 and
2006
  Inventories— Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value. Market value is determined based on
replacement cost for raw materials and net realizable value for work in process
and finished goods.
  Property,
Plant and Equipment— Property, plant and equipment is carried at cost.
Depreciation is provided principally on a straight-line basis over the estimated
useful lives of the assets. The cost of assets retired or otherwise disposed of
and the related accumulated depreciation are eliminated from the accounts in the
year of disposal with the resulting gain or loss credited or charged to income.
Expenditures for additions, major renewals, and betterments are capitalized
while expenditures for routine maintenance and repairs are expensed as incurred.
Depreciation expense on operating equipment used in production is included in
cost of goods sold in the accompanying consolidated statements of operations.
All other depreciation is included in selling, general and administrative
expenses in the accompanying consolidated statements of operations. Property,
plant and equipment are reviewed for impairment when indicators of impairment
exist.
  Goodwill
and Other Intangibles— Intangibles consist primarily of goodwill and
trade names related to businesses acquired. Goodwill represents the excess of
the purchase price over the fair value of net assets of businesses acquired. The
carrying amount of goodwill was $3,308,000 as of December 31, 2008 and 2007.
Goodwill is reviewed annually for impairment in accordance with the provisions
of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and
Other Intangible Assets.” In reviewing goodwill for impairment, potential
impairment is measured by comparing the estimated fair value of a reporting unit
with its carrying value. Based upon the results of these analyses, the Company
has concluded that no impairment of its goodwill has occurred for the years
ended December 31, 2008, 2007 or 2006.
  Investments— The Company maintains certain securities in the non-qualified
Supplemental Executive Retirement Plan that have been classified as trading. See
“NOTE 10: EMPLOYEE BENEFIT PLANS” for further information regarding these
securities.
  Warranty
Costs— The Company warrants the entire boat, excluding the engine,
against defects in materials and workmanship for a period of one year. The
Company also warrants the entire deck and hull, including its bulkhead and
supporting stringer system, against defects in materials and workmanship for
periods extending up to 10 years. The Company accrues for estimated future
warranty costs at the time of the sale based on its historical claims
experience. An analysis of the warranty accruals for the years ended December
31, 2008 and 2007 is as follows:
  (in
      thousands)
                                
                                2008
                                
                                
                                2007Balance
      at beginning of year
                                
                                $
                                4,768
                                
                                
                                $
                                5,337Less:
      Payments made during the year
                                
                                
                                (4,392
                                )
                                
                                
                                (5,527
                                )Add:
      Warranty provision for the current year
                                
                                
                                3,348
                                
                                
                                
                                4,719Changes
      to warranty provision for prior years
                                
                                
                                (157
                                )
                                
                                
                                239Balance
      at end of year
                                
                                $
                                3,567
                                
                                
                                $
                                4,768
  Insurance
Accruals— The Company fully insures its risks related to general
liability, product liability, workers’ compensation, and vehicle liability,
whereas the health insurance plan is self-funded up to a maximum annual claim
amount for each covered employee and related dependents. The estimated cost of
claims under the self-insurance program is accrued as the claims are incurred
and may subsequently be revised based on developments relating to such
claims.
  Research
and Development Costs— The Company expenses research and development
costs for new products and components as incurred. Research and development
costs are included in selling, general and administrative expenses and totaled
$1,759,000 in 2008, $1,746,000 in 2007, and $1,439,000 in 2006.
  Repurchase
obligations— 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. The Company estimates and accrues potential
losses related to the repurchase obligation exposure.
  Income
Taxes— Deferred tax liabilities and assets are determined based on the
difference between the financial and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company establishes a valuation allowance against the carrying
value of deferred tax assets if the Company concludes that it is more likely
than not that the asset will not be realized through future taxable
income.
  38
 
 Notes
      to Consolidated Financial StatementsMarine
      Products Corporation and SubsidiariesYears
      ended December 31, 2008, 2007 and
2006
  Earnings
per Share— SFAS No. 128, “Earnings Per Share,” requires a basic earnings
per share and diluted earnings per share presentation. The two calculations
differ as a result of the dilutive effect of stock options and time lapse
restricted shares and performance restricted shares included in diluted earnings
per share, but excluded from basic earnings per share. A reconciliation of
weighted average shares outstanding is as follows:
  2008
                                          
                                          2007
                                          
                                          2006Basic
                                          
                                          
                                          35,786,292
                                          
                                          
                                          37,147,567
                                          
                                          
                                          37,338,724Dilutive
      effect of stock options and restricted shares
                                          
                                          
                                          658,119
                                          
                                          
                                          1,141,994
                                          
                                          
                                          1,639,582Diluted
                                          
                                          
                                          36,444,411
                                          
                                          
                                          38,289,561
                                          
                                          
                                          38,978,306
  Further
note that certain stock options as shown below were excluded from the
computation of the dilutive effect of stock options and restricted shares
because the effect of their inclusion would be anti-dilutive to earnings per
share:
 (in
      thousands)
                          
                          2008
                          
                          2007
                          
                          2006Stock
      options
                          
                          45
                          
                          48
                          
                          50
  Fair
Value of Financial Instruments— The Company’s financial instruments
consist primarily of cash and cash equivalents, accounts receivable, accounts
payable and marketable securities. The carrying value of cash, accounts
receivable and accounts payable approximate their fair values because of the
short-term nature of such instruments. The Company’s marketable securities are
classified as available-for-sale securities with the exception of securities
held in the non-qualified Supplemental Executive Retirement Plan (“SERP”) which
are classified as trading securities. All of these securities are carried at
fair value in the accompanying consolidated balance sheets. The fair value of
these securities is based upon quoted market prices.
  Concentration
of Suppliers— The Company purchases a significant number of its
sterndrive engines from only two available suppliers. This concentration of
suppliers could impact our sales and profitability in the event of a sudden
interruption in the delivery of these engines.
  New
Accounting Standards —In December 2008, the FASB issued FASB Staff
Position (FSP) FAS 132R-1, “Employers’ Disclosures about Postretirement Benefit
Plan Assets.” The FASB issued the FSP, which amends FASB Statement 132R, Employers’ Disclosures about
Pensions and Other Postretirement Benefits, in order to provide adequate
transparency about the types of assets and associated risks in employers’
postretirement plans. Disclosures are designed to provide an understanding of
how investment decisions are made: the major categories of plan assets; the
inputs and valuation techniques used to measure the fair value of plan assets;
the effect of fair value measurements using significant unobservable inputs
(Level 3 measurements in FASB Statement 157, Fair Value Measurements) on changes
in plan assets for the period; and significant concentrations of risk within
plan assets The disclosures about plan assets required by this FSP are required
to be provided for fiscal years ending after December 15, 2009, with the
provisions of this FSP not required for earlier periods that are presented for
comparative purposes, upon initial application. Earlier application of the
provisions of this FSP is permitted. The Company is currently in the process of
determining the additional disclosures required upon the adoption of this
FSP.
  In
October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3,
“Determining the Fair Value of a Financial Asset When the Market for That Asset
Is Not Active.” FSP 157-3 clarifies the application of SFAS No. 157, “Fair Value Measurements,” in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The FSP stipulates that
determining fair value in a dislocated market depends on the facts and
circumstances and may require the use of significant judgment when evaluating
individual transactions or broker quotes which are some of the sources of the
fair value measurement. In addition, FSP FAS 157-3 states that if an entity uses
its own assumptions to determine fair value, it must include appropriate risk
adjustments that market participants would make for nonperformance and liquidity
risks. FSP FAS 157-3 is effective upon issuance, including prior periods for
which financial statements have not been issued. The Company adopted FSP FAS
157-3 in the third quarter of 2008 and has concluded that it does not have a
material effect on its consolidated financial statements.
  39
 
 Notes
      to Consolidated Financial StatementsMarine
      Products Corporation and SubsidiariesYears
      ended December 31, 2008, 2007 and
2006
  In
September 2008, the FASB issued FSP No. FAS 133-1 and FIN 45-4, “Disclosures
about Credit Derivatives and Certain Guarantees – An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161.” This FSP amends FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” to require disclosures by sellers of
credit derivatives, including credit derivatives embedded in a hybrid
instrument. This FSP also amends FASB Interpretation No.(FIN) 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” to require an additional disclosure about the
current status of the payment/performance risk of a guarantee. Further this FSP
clarifies the Board’s intent about the effective date of FASB Statement No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities.” The Company has adopted the
provisions of this FSP for the year ended December 31, 2008. Refer “NOTE 9:
COMMITMENT AND CONTINGENCIES” for information regarding the status of the
payment/performance risk of the guarantees.
  In
June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” to
clarify that all outstanding unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents, whether paid or
unpaid, are participating securities. An entity must include participating
securities in its calculation of basic and diluted earnings per share (EPS)
pursuant to the two-class method, as described in FASB Statement 128, Earnings
per Share. FSP EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. The Company
intends to adopt FSP EITF 03-6-1 effective January 1, 2009 and apply its
provisions retrospectively to all prior-period EPS data presented in its
financial statements. The Company has periodically issued share-based payment
awards that contain non-forfeitable rights to dividends and does not expect the
adoption of this accounting guidance to have a material effect on its
consolidated financial statements or EPS.
  In
April 2008, the FASB issued FSP FAS No. 142-3, which amends the
factors that must be considered in developing renewal or extension assumptions
used to determine the useful life over which to amortize the cost of a
recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” The FSP requires an entity that is estimating the useful life of
a recognized intangible asset to consider its historical experience in renewing
or extending similar arrangements or, in the absence of historical experience,
must consider assumptions that market participants would use about renewal or
extension that are both consistent with the asset’s highest and best use and
adjusted for entity-specific factors under SFAS No. 142. The FSP is
effective for fiscal years beginning after December 15, 2008, and the
guidance for determining the useful life of a recognized intangible asset must
be applied prospectively to intangible assets acquired after the effective date.
The Company does not expect the adoption of FSP FAS No. 142-3 to have a
material effect on its consolidated financial statements.
  In
May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS 162 is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in financial statements that are presented in conformity
with U.S. generally accepted accounting principles for nongovernmental entities.
This Statement became effective on November 15, 2008. The Company does not
expect the adoption of this statement to have a material effect on its
consolidated financial statements.
  In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments
and Hedging Activities - an Amendment of FASB Statement 133.” SFAS161 requires
enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. Statement 161 is effective for fiscal years and
interim periods beginning after November 15, 2008 with early application being
encouraged. The Company does not have any derivative instruments nor is
currently involved in hedging activities and therefore adoption of SFAS 161 is
not expected to have a material impact on the Company’s consolidated financial
statements.
  In
February 2008, the FASB issued FSP FAS 157-1, “Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13,” and FSP FAS 157-2, “Effective Date of FASB Statement No.
157.” These FSPs:
 ●
              Exclude
      certain leasing transactions accounted for under FASB Statement No. 13,
      Accounting for
      Leases, from the scope of Statement 157. The exclusion does not
      apply to fair value measurements of assets and liabilities recorded as a
      result of a lease transaction but measured pursuant to other
      pronouncements within the scope of Statement 157.●
              Defer
      the effective date in FASB Statement No. 157, Fair Value
      Measurements, for one year for certain nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair value in the financial statements on a recurring basis (at least
      annually).
  FSP FAS
157-1 is effective upon the initial adoption of Statement 157. FSP FAS 157-2 is
effective February 12, 2008. The Company has adopted the provisions of FSP 157-1
and 157-2 in the first quarter of 2008.
  40
  Notes
to Consolidated Financial Statements
 Marine
Products Corporation and Subsidiaries
 Years
ended December 31, 2008, 2007 and 2006
  NOTE
2: ACCOUNTS RECEIVABLE
  Accounts
receivable consist of the following:
  December
      31,
                                            
                                            2008
                                            
                                            
                                            2007(in
      thousands)Trade
      receivables
                                            
                                            $
                                            5,499
                                            
                                            
                                            $
                                            3,036Other
                                            
                                            
                                            114
                                            
                                            
                                            
                                            545Total
                                            
                                            
                                            5,613
                                            
                                            
                                            
                                            3,581Less:
      Allowance for doubtful accounts
                                            
                                            
                                            (38
                                            )
                                            
                                            
                                            (41
                                            )Net
      accounts receivable
                                            
                                            $
                                            5,575
                                            
                                            
                                            $
                                            3,540
  Trade
receivables consist primarily of balances related to the sales of boats which
are shipped pursuant to ”floor-plan financing” programs with qualified lenders.
Other receivables consist primarily of amounts due from vendors for co-op
advertising and rebates on engine purchases.
  Changes
in the Company’s allowance for doubtful accounts are disclosed in Schedule II on
page 60 of this report.
  NOTE
3: INVENTORIES
  Inventories
consist of the following:
 December
      31,
                              
                              2008
                              
                              
                              2007(in
      thousands)Raw
      materials
                              
                              $
                              11,052
                              
                              
                              $
                              14,001Work
      in process
                              
                              
                              5,095
                              
                              
                              
                              10,830Finished
      goods
                              
                              
                              6,306
                              
                              
                              
                              8,328Total
      inventories
                              
                              $
                              22,453
                              
                              
                              $
                              33,159
  NOTE
4: PROPERTY, PLANT AND EQUIPMENT
  Property,
plant and equipment are presented at cost, net of accumulated depreciation, and
consist of the following:
 December
      31,
                              
                              Estimated
                                Useful
      Lives
                              
                              
                              2008
                              
                              
                              2007(in
      thousands)Land
                              
                              
                              N/A
                              
                              
                              $
                              657
                              
                              
                              $
                              657Buildings
                              
                              
                              20-39
                              
                              
                              
                              16,912
                              
                              
                              
                              16,882Operating
      equipment and property
                              
                              
                              3-15
                              
                              
                              
                              9,483
                              
                              
                              
                              9,266Furniture
      and fixtures
                              
                              
                              5-7
                              
                              
                              
                              1,686
                              
                              
                              
                              1,671Vehicles
                              
                              
                              3-5
                              
                              
                              
                              6,183
                              
                              
                              
                              6,139Gross
      property, plant and equipment
                              
                              
                              
                              
                              
                              
                              34,921
                              
                              
                              
                              34,615Less:
      accumulated depreciation
                              
                              
                              
                              
                              
                              
                              (20,342
                              )
                              
                              
                              (18,671
                              )Net
      property, plant and equipment
                              
                              
                              
                              
                              
                              $
                              14,579
                              
                              
                              $
                              15,944
  Depreciation
expense was $1,694,000 in 2008, $1,950,000 in 2007, and $2,130,000 in
2006.
  41
  Notes
to Consolidated Financial Statements
 Marine
Products Corporation and Subsidiaries
 Years
ended December 31, 2008, 2007 and 2006
  NOTE
5: RELATED PARTY TRANSACTIONS
  In
conjunction with its spin-off from RPC, Inc. (“RPC”) in 2001, the Company and
RPC entered into various agreements that define the companies’ relationship
after the spin-off.
  The
Transition Support Services Agreement provides for RPC to provide certain
services, including financial reporting and income tax administration,
acquisition assistance, etc., to Marine Products until the agreement is
terminated by either party. Marine Products reimbursed RPC for its estimated
allocable share of administrative costs incurred for services rendered on behalf
of Marine Products totaling $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 executive officers with the exception of
one director 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.
  NOTE
6: ACCRUED EXPENSES AND OTHER LIABILITIES
  Accrued
expenses and other liabilities consist of the following:
 December
      31,
                          
                          2008
                          
                          
                          2007(in
      thousands)Accrued
      payroll and related expenses
                          
                          $
                          1,031
                          
                          
                          $
                          2,182Accrued
      sales incentives and discounts
                          
                          
                          2,937
                          
                          
                          
                          4,374Accrued
      warranty costs
                          
                          
                          3,567
                          
                          
                          
                          4,768Deferred
      revenue
                          
                          
                          1,604
                          
                          
                          
                          2,283Due
      to floor plan lenders for repurchased boats
                          
                          
                          2,378
                          
                          
                          
                          —Other
                          
                          
                          764
                          
                          
                          
                          687Total
      accrued expenses and other liabilities
                          
                          $
                          12,281
                          
                          
                          $
                          14,294
  NOTE
7: INCOME TAXES
  The
following table lists the components of the provision for income
taxes:
 Years
      ended December 31,
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006(in
      thousands)Current
      provision:Federal
                          
                          $
                          3,109
                          
                          
                          $
                          7,806
                          
                          
                          $
                          9,549State
                          
                          
                          93
                          
                          
                          
                          265
                          
                          
                          
                          309Deferred
      provision (benefit):Federal
                          
                          
                          477
                          
                          
                          
                          309
                          
                          
                          
                          (778
                          )State
                          
                          
                          (46
                          )
                          
                          
                          22
                          
                          
                          
                          41Total
      income tax provision
                          
                          $
                          3,633
                          
                          
                          $
                          8,402
                          
                          
                          $
                          9,121
  42
  Notes
to Consolidated Financial Statements
 Marine
Products Corporation and Subsidiaries
 Years
ended December 31, 2008, 2007 and 2006
  A
reconciliation between the federal statutory rate and Marine Products’ effective
tax rate is as follows:
 Years
      ended December 31,
                                  
                                  2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006Federal
      statutory rate
                                  
                                  35.0
                                  %
                                  
                                  35.0
                                  %
                                  
                                  35.0
                                  %State
      income taxes, net of federal benefit
                                  
                                  0.7
                                  
                                  
                                  0.7
                                  
                                  
                                  0.6Tax-exempt
      interest
                                  
                                  (7.0
                                  )
                                  
                                  (2.0
                                  )
                                  
                                  —Tax-exempt
      (gain) loss on SERP assets
                                  
                                  5.5
                                  
                                  
                                  (0.1
                                  )
                                  
                                  (0.3
                                  )ETI
      benefit
                                  
                                  —
                                  
                                  
                                  —
                                  
                                  
                                  (0.5
                                  )Manufacturing
      deduction
                                  
                                  (1.2
                                  )
                                  
                                  (2.2
                                  )
                                  
                                  (1.0
                                  )Change
      in state credits
                                  
                                  (2.2
                                  )
                                  
                                  (5.8
                                  )
                                  
                                  (4.3
                                  )Change
      in valuation allowance
                                  
                                  1.3
                                  
                                  
                                  5.8
                                  
                                  
                                  4.3Other
                                  
                                  0.3
                                  
                                  
                                  2.4
                                  
                                  
                                  (2.9
                                  )Effective
      tax rate
                                  
                                  32.4
                                  %
                                  
                                  33.8
                                  %
                                  
                                  30.9
                                  %
  Significant
components of the Company’s deferred tax assets and liabilities are as
follows:
  December
      31,
                      
                      2008
                      
                      
                      2007(in
      thousands)Deferred
      tax assets:Warranty
      costs
                      
                      $
                      1,266
                      
                      
                      $
                      1,692Sales
      incentives and discounts
                      
                      
                      579
                      
                      
                      
                      811Stock-based
      compensation
                      
                      
                      763
                      
                      
                      
                      630Pension
                      
                      
                      1,891
                      
                      
                      
                      1,474All
      others
                      
                      
                      298
                      
                      
                      
                      321State
      credits
                      
                      
                      5,032
                      
                      
                      
                      4,790Valuation
      Allowance
                      
                      
                      (4,935
                      )
                      
                      
                      (4,790
                      )Total
      deferred tax assets
                      
                      
                      4,894
                      
                      
                      
                      4,928Deferred
      tax liabilities:Depreciation
      and amortization expense
                      
                      
                      (844
                      )
                      
                      
                      (1,084
                      )Net
      deferred tax assets
                      
                      $
                      4,050
                      
                      
                      $
                      3,844
  Total
income tax payments, net of refunds, were $3,714,000 in 2008, $7,718,000 in
2007, and $7,985,000 in 2006. The Company includes a valuation allowance against
certain state credits based on an examination of these deferred tax assets and
the expectation that they will not be realized based on future market growth,
forecasted earnings, future taxable income, the mix of earnings in the
jurisdictions in which the Company operates, and prudent and feasible tax
planning strategies.
  In
July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN
48”), which provides criteria for the recognition, measurement, presentation and
disclosure of uncertain tax positions. The Company adopted the provisions of FIN
48 as of January 1, 2007, and has analyzed filing positions in federal, state
and foreign filing jurisdictions where it is required to file income tax
returns, as well as all open years in those jurisdictions. As a result of the
implementation of FIN 48, the Company did not recognize a material adjustment in
the liability for unrecognized income tax benefits. As of the adoption date the
Company had gross tax affected unrecognized tax benefits of $659,000, all of
which, if recognized, would have affected the Company’s effective tax rate. As
of December 31, 2008 the Company had remaining gross tax affected unrecognized
benefits of $173,000. A reconciliation of the beginning and ending amount of
unrecognized tax benefits for 2008 and 2007 are as follows:
 (in
      thousands)
                          
                          2008
                          
                          
                          2007Balance
      at the beginning of the year
                          
                          $
                          175
                          
                          
                          $
                          659Additions
      based on tax positions related to current year
                          
                          
                          —
                          
                          
                          
                          —Additions
      for tax positions of prior years
                          
                          
                          3
                          
                          
                          
                          7Reductions
      for tax positions of prior years
                          
                          
                          (5
                          )
                          
                          
                          (491
                          )Balance
      at the end of the year
                          
                          $
                          173
                          
                          
                          $
                          175
  43
  Notes
to Consolidated Financial Statements
 Marine
Products Corporation and Subsidiaries
 Years
ended December 31, 2008, 2007 and 2006
  The
Company and its subsidiaries are subject to U.S. federal and state income tax in
multiple jurisdictions. In many cases our uncertain tax positions are related to
tax years that remain open and subject to examination by the relevant taxing
authorities. The Company’s 2005 through 2008 tax years remain open to
examination.
  It
is reasonably possible that the amount of the unrecognized benefits with respect
to our unrecognized tax positions will increase or decrease in the next 12
months. These changes may be the result of, among other things, state tax
settlements under voluntary disclosure agreements. However, quantification of an
estimated range cannot be made at this time.
  The
Company’s policy is to record interest and penalties related to income tax
matters as income tax expense. Accrued interest and penalties were immaterial as
of December 31, 2008 and 2007.
  NOTE
8: ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
  Accumulated
other comprehensive (loss) income consists of the following:
 Pension
      Adjustment
                            
                            
                            Unrealized
                              Gain
      (Loss) on
                              Securities
                            
                            
                            Total(in
      thousands)Balance
      at December 31, 2006
                            
                            $
                            (687
                            )
                            
                            $
                            (31
                            )
                            
                            $
                            (718
                            )Change
      during 2007:Before-tax
      amount
                            
                            
                            738
                            
                            
                            
                            452
                            
                            
                            
                            1,190Tax
      provision
                            
                            
                            (262
                            )
                            
                            
                            (183
                            )
                            
                            
                            (445
                            )Reclassification
      adjustment, net of taxes
                            
                            
                            —
                            
                            
                            
                            23
                            
                            
                            
                            23Total
      activity in 2007
                            
                            
                            476
                            
                            
                            
                            292
                            
                            
                            
                            768Balance
      at December 31, 2007
                            
                            $
                            (211
                            )
                            
                            $
                            261
                            
                            
                            $
                            50Change
      during 2008:Before-tax
      amount
                            
                            
                            (2,085
                            )
                            
                            
                            280
                            
                            
                            
                            (1,805
                            )Tax
      benefit (provision)
                            
                            
                            740
                            
                            
                            
                            (99
                            )
                            
                            
                            641Reclassification
      adjustment, net of taxes
                            
                            
                            —
                            
                            
                            
                            (275
                            )
                            
                            
                            (275
                            )Total
      activity in 2008
                            
                            
                            (1,345
                            )
                            
                            
                            (94
                            )
                            
                            
                            (1,439
                            )Balance
      at December 31, 2008
                            
                            $
                            (1,556
                            )
                            
                            $
                            167
                            
                            
                            $
                            (1,389
                            )
  NOTE
9: COMMITMENTS AND CONTINGENCIES
  Lawsuits— The Company is a defendant in certain lawsuits which allege that
plaintiffs have been damaged as a result of the use of the Company’s products.
The Company is vigorously contesting these actions. Management, after
consultation with legal counsel, is of the opinion that the outcome of these
lawsuits will not have a material adverse effect on the financial position,
results of operations or liquidity of Marine Products.
  Dealer
Floor Plan Financing— To assist dealers in obtaining financing for the
purchase of its boats for inventory, the Company has entered into agreements
with various dealers and selected third-party floor plan lenders to guarantee
varying amounts of qualifying dealers’ debt obligations. The Company’s
obligation under these guarantees becomes effective in the case of default by
the dealer. The agreements provide for the return of all repossessed boats in
“like new” condition to the Company, in exchange for the Company’s assumption of
specified percentages of the dealers’ unpaid debt obligation on those boats, up
to certain contractually determined dollar limits by the lender. During the
fourth quarter of 2008, the Company became contractually 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 and is recorded
in accrued expenses. Prior to year end, 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. Based on amounts outstanding as of December 31, 2008, the
remaining aggregate obligation under these agreements is $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 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; at December 31, 2007, this amount is
immaterial. 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.
  44
  Notes
to Consolidated Financial Statements
 Marine
Products Corporation and Subsidiaries
 Years
ended December 31, 2008, 2007 and 2006
  At
the end of 2008, one of the Company’s third-party floor plan lenders announced
that it would cease floor plan lending to all unaffiliated dealers including
those in the marine industry. In early 2009 another lender 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.
  Lease
Obligations— In June 2001, the Company entered into a lease transaction
for existing boat manufacturing space located in Valdosta, Georgia. The lease
has a term of 12 years. This lease has been accounted for as a capital lease and
accordingly, the building, land, and miscellaneous equipment have been recorded
in property, plant and equipment on the consolidated balance sheet at a gross
amount of $1,016,000 with accumulated depreciation of approximately $213,000 as
of December 31, 2008. A liability equal to the estimated present value of the
remaining lease obligation totaling $275,000 as of December 31, 2008 and is
included in other long-term liabilities on the consolidated balance sheet.
During the fourth quarter of 2008, this facility in Valdosta, Georgia was
temporarily idled and production of these boats were moved to the Nashville,
Georgia facility. There are no plans or current intentions to dispose of this
facility.
  Minimum
annual operating lease obligations with terms in excess of one year, in effect
at December 31, 2008, are summarized in the following table:
 (in
      thousands)2009
                              
                              $
                              150,2822010
                              
                              
                              155,8682011
                              
                              
                              155,8682012
                              
                              
                              161,7482013
                              
                              
                              142,687Thereafter
                              
                              
                              714,372Total
      rental commitments
                              
                              $
                              1,480,825
 
 Total rent expense charged to operations was approximately $112, 000 in 2008,
$119,000 in 2007 and $88,000 in 2006.
  Income
Taxes — The amount of income taxes the Company pays is subject to ongoing
audits by federal and state tax authorities, which often result in proposed
assessments. Included in other long-term liabilities is the Company’s
estimated liabilities for these probable assessments and totaled approximately
$226,000 as of December 31, 2008 and $225,000 as of December 31,
2007.
  Employment
Agreements— The Company has agreements with two employees, which
provide for a monthly payment to each of the employees equal to 10 percent of
profits (defined as pretax income before goodwill adjustments and certain
allocated corporate expenses) in addition to a base salary. The expense under
these agreements totaled approximately $3,519,000 in 2008, $6,933,000 in 2007,
and $7,999,000 in 2006 and is included in selling, general and administrative
expenses in the accompanying consolidated statements of
operations.
  45


Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




NOTE
10: EMPLOYEE BENEFIT PLANS




Retirement
Plan— Marine Products participates in the tax-qualified, defined
benefit, noncontributory, trusteed retirement income plan sponsored by RPC that
covers substantially all employees with at least one year of service prior to
2002. The Company’s Board of Directors approved a resolution to cease all future
retirement benefit accruals under the Retirement Income Plan effective March 31,
2002. In lieu thereof, the Company began providing enhanced benefits in the form
of cash contributions for certain longer serviced employees that had not reached
the normal retirement age of 65 as of March 31, 2002. These discretionary
contributions were made over a seven year period which ended in 2008 to either a
non-qualified SERP established by the Company or to the 401(k) plan for each
employee that is entitled to the enhanced benefit. The expenses related to the
enhanced benefits were $94,000 in 2008, $127,000 in 2007, and $119,000 in
2006.




The
Company permits selected highly compensated employees to defer a portion of
their compensation into the SERP. The SERP assets are marked to market and as of
December 31, 2008 and 2007 totaled approximately $3,742,000 and $5,057,000. The
SERP assets are reported in other assets on the consolidated balance sheets and
changes related to the fair value of the assets are included in selling, general
and administrative expenses in the consolidated statements of operations for
2008, 2007 and 2006. Trading (losses) gains related to the SERP assets totaled
$(1,729,000) in 2008, $73,000 in 2007, and $186,000 in 2006. The SERP deferrals
and the contributions are recorded on the balance sheet in pension liabilities
with any change in the fair value of the SERP liabilities recorded as selling,
general and administrative expenses in the consolidated statements of
operations.




The
Company adopted the provisions of SFAS 158 in 2006. In accordance with the
provisions of SFAS 158, the Company’s projected benefit obligation exceeded the
fair value of the plan assets for its pension plan by $761,000 and thus the plan
was under-funded as of December 31, 2008. Prior to the adoption of SFAS 158, the
Company’s disclosure of the funded status in the notes to the consolidated
financial statements did not differ from the amount recognized in the
consolidated balance sheets; therefore, the adoption of SFAS 158 did not have an
effect on the consolidated balance sheet.




The
following table sets forth the funded status of the Retirement Income Plan and
the amounts recognized in Marine Products’ consolidated balance
sheets:


December
      31,
                                                        
                                                        2008
                                                        
                                                        
                                                        2007(in
      thousands)ACCUMULATED
      BENEFIT OBLIGATION, END OF YEAR
                                                        
                                                        $
                                                        4,656
                                                        
                                                        
                                                        $
                                                        4,385CHANGE
      IN PROJECTED BENEFIT OBLIGATION:Benefit
      obligation at beginning of year
                                                        
                                                        $
                                                        4,385
                                                        
                                                        
                                                        $
                                                        4,699Service
      cost
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Interest
      cost
                                                        
                                                        
                                                        281
                                                        
                                                        
                                                        
                                                        256Actuarial
      (gain) loss
                                                        
                                                        
                                                        196
                                                        
                                                        
                                                        
                                                        (494
                                                        )Benefits
      paid
                                                        
                                                        
                                                        (206
                                                        )
                                                        
                                                        
                                                        (76
                                                        )Projected
      benefit obligation at end of year
                                                        
                                                        $
                                                        4,656
                                                        
                                                        
                                                        $
                                                        4,385CHANGE
      IN PLAN ASSETS:Fair
      value of plan assets at beginning of year
                                                        
                                                        $
                                                        5,554
                                                        
                                                        
                                                        $
                                                        4,820Actual
      return on plan assets
                                                        
                                                        
                                                        (1,453
                                                        )
                                                        
                                                        
                                                        560Employer
      contributions
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        250Benefits
      paid
                                                        
                                                        
                                                        (206
                                                        )
                                                        
                                                        
                                                        (76
                                                        )Fair
      value of plan assets at end of year
                                                        
                                                        $
                                                        3,895
                                                        
                                                        
                                                        $
                                                        5,554Funded
      status at end of year
                                                        
                                                        $
                                                        (761
                                                        )
                                                        
                                                        $
                                                        1,169


46




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006


December
      31,
                                  
                                  2008
                                  
                                  
                                  2007(in
      thousands)AMOUNTS
      RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF:Noncurrent
      assets
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  1,169Current
      liabilities
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Noncurrent
      liabilities
                                  
                                  
                                  (761
                                  )
                                  
                                  
                                  —$
                                  (761
                                  )
                                  
                                  $
                                  1,169




The
funded status of the plan was recorded in the consolidated balance sheets in
long-term pension liabilities as of December 31, 2008 and in other non-current
assets as of December 31, 2007.


December
      31,
                                  
                                  2008
                                  
                                  
                                  2007(in
      thousands)AMOUNTS
      (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
      CONSIST OF:Net
      loss (gain)
                                  
                                  $
                                  2,412
                                  
                                  
                                  $
                                  327Prior
      service cost (credit)
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Net
      transition obligation (asset)
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —$
                                  2,412
                                  
                                  
                                  $
                                  327




The
accumulated benefit obligation for the defined benefit pension plan at December
31, 2008 and 2007 has been disclosed above. The Company uses a December 31
measurement date for this qualified plan.




Amounts
recognized in the consolidated balance sheet under pension liabilities consist
of:


December
      31,
                          
                          2008
                          
                          
                          2007(in
      thousands)SERP
      employer contributions/employee deferrals
                          
                          $
                          (4,524
                          )
                          
                          $
                          (5,572
                          )Long-term
      pension liability
                          
                          
                          (761
                          )
                          
                          
                          —$
                          (5,285
                          )
                          
                          $
                          (5,572
                          )




Marine
Products’ funding policy is to contribute to the retirement income plan the
amount required, if any, under the Employee Retirement Income Security Act of
1974. Marine Products contributed $250,000 in 2007 to this Plan and no
contributions were made in 2008.




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


Years
      ended December 31,
                                  
                                  2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006(in
      thousands)Service
      cost for benefits earned during the period
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  —Interest
      cost on projected benefit obligation
                                  
                                  
                                  280
                                  
                                  
                                  
                                  257
                                  
                                  
                                  
                                  246Expected
      return on plan assets
                                  
                                  
                                  (436
                                  )
                                  
                                  
                                  (398
                                  )
                                  
                                  
                                  (341
                                  )Amortization
      of net (gain) loss
                                  
                                  
                                  —
                                  
                                  
                                  
                                  81
                                  
                                  
                                  
                                  108$
                                  (156
                                  )
                                  
                                  $
                                  (60
                                  )
                                  
                                  $
                                  13


47




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




The
Company recognized pre-tax decreases (increases) to the funded status in
comprehensive income of $2,085,000 in 2008, $(738,000) in 2007, and $(572,000)
in 2006. There were no previously unrecognized prior service costs as of
December 31, 2008 and 2007. The pre-tax amounts recognized in comprehensive
income for the years ended December 31, 2008, 2007 and 2006 are summarized
as follows:


(in
      thousands)
                                                        
                                                        2008
                                                        
                                                        
                                                        2007
                                                        
                                                        
                                                        2006Net
      loss (gain)
                                                        
                                                        $
                                                        2,085
                                                        
                                                        
                                                        $
                                                        (657
                                                        )
                                                        $
                                                        (464
                                                        )Amortization
      of net (loss) gain
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (81
                                                        )
                                                        
                                                        (108
                                                        )Net
      transition obligation (asset)
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        —Amount
      recognized in other comprehensive income
                                                        
                                                        $
                                                        2,085
                                                        
                                                        
                                                        $
                                                        (738
                                                        )
                                                        $
                                                        (572
                                                        )




The
amounts in accumulated other comprehensive income expected to be recognized as
components of net periodic benefit cost in 2009 are as follows:


(in
      thousands)
                                  
                                  2009Amortization
      of net loss (gain)
                                  
                                  $
                                  259Prior
      service cost (credit)
                                  
                                  
                                  —Net
      transition obligation (asset)
                                  
                                  
                                  —Estimated
      net periodic cost
                                  
                                  $
                                  259




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


December
      31,
              
              2008
              
              
              2007
              
              
              2006PROJECTED
      BENEFIT
      OBLIGATION:Discount
      rate
              
              
              6.43
              %
              
              
              6.25
              %
              
              
              5.50
              %Rate
      of compensation increase
              
              
              N/A
              
              
              
              N/A
              
              
              
              N/ANET
      BENEFIT COST:Discount
      rate
              
              
              6.25
              %
              
              
              5.75
              %
              
              
              5.50
              %Expected
      return on plan assets
              
              
              8.00
              %
              
              
              8.00
              %
              
              
              8.00
              %Rate
      of compensation increase
              
              
              N/A
              
              
              
              N/A
              
              
              
              N/A




The
Company’s expected return on assets assumption is derived from a detailed
periodic assessment by its management and investment advisor. It includes a
review of anticipated future long-term performance of individual asset classes
and consideration of the appropriate asset allocation strategy given the
anticipated requirements of the plan to determine the average rate of earnings
expected on the funds invested to provide for the pension plan benefits. While
the assessment gives appropriate consideration to recent fund performance and
historical returns, the rate of return assumption is derived primarily from a
long-term, prospective view. Based on its recent assessment, the Company has
concluded that its expected long-term return assumption of eight percent is
reasonable.




48




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




The
plan’s weighted average asset allocation at December 31, 2008 and 2007 by asset
category along with the target allocation for 2009 are as follows:


Asset
      Category
                                      
                                      Target
                                        Allocation
                                        for
      2009
                                      
                                      
                                      Percentage
      of
                                        Plan
      Assets as of
                                        December
      31,
                                        2008
                                      
                                      
                                      Percentage
      of
                                        Plan
      Assets as of
                                        December
      31,
                                        2007Equity
      Securities
                                      
                                      
                                      43.0
                                      %
                                      
                                      
                                      37.5
                                      %
                                      
                                      
                                      48.1
                                      %Debt
      Securities — Core Fixed Income
                                      
                                      
                                      27.0
                                      
                                      
                                      
                                      14.0
                                      
                                      
                                      
                                      27.1Tactical
      — Fund of Equity and Debt Securities
                                      
                                      
                                      5.0
                                      
                                      
                                      
                                      4.3
                                      
                                      
                                      
                                      5.2Real
      Estate
                                      
                                      
                                      5.0
                                      
                                      
                                      
                                      7.7
                                      
                                      
                                      
                                      5.7Other
                                      
                                      
                                      20.0
                                      
                                      
                                      
                                      36.5
                                      
                                      
                                      
                                      13.9Total
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      100.0
                                      %
                                      
                                      
                                      100.0
                                      %




The
Company’s investment strategy for its pension plan is to maximize the long-term
rate of return on plan assets within an acceptable level of risk in order to
minimize the cost of providing pension benefits in accordance with this plan.
The investment policy establishes a target allocation for each asset class,
which is rebalanced as required. The Company utilizes a number of investment
approaches, including individual marketable securities, equity and fixed income
funds in which the underlying securities are marketable, and debt funds to
achieve this target allocation. The Company does not expect to contribute to the
pension plan in 2009 and does not expect to receive a refund in
2009.




The Company estimates that the future benefits payable for the defined benefit
plan over the next ten years are as follows:


(in
      thousands)2009
                                                
                                                $
                                                2222010
                                                
                                                
                                                2302011
                                                
                                                
                                                2452012
                                                
                                                
                                                2612013
                                                
                                                
                                                2762014-2018
                                                
                                                
                                                1,455




401(k)
Plan— Marine Products participates in a defined contribution 401(k) plan
sponsored by RPC that is available to substantially all full-time employees with
more than 90 days of service. This plan allows employees to make tax-deferred
contributions of up to 25 percent of their annual compensation, not exceeding
the permissible deduction imposed by the Internal Revenue Code. The Company
matches 50 percent of each employee’s contributions that do not exceed six
percent of the employee’s compensation, as defined by the 401(k) plan. Employees
vest in the Company’s contributions after three years of service. The charges to
expense for Marine Products’ contributions to the 401(k) plan were approximately
$204,000 in 2008, $221,000 in 2007, and $176,000 in 2006.




Stock
Incentive Plan— The Company has granted various awards to employees under
two stock incentive plans (the “Plans”) that were approved by the shareholders
in 2001 and 2004. The Company reserved a total of 5,250,000 shares of common
stock under both Plans, each of which expires 10 years from approval. The Plans
provide for the issuance of various forms of stock incentives, including, among
others, incentive and non-qualified stock options and restricted stock. As of
December 31, 2008, shares totaling 1,784,000 were available for grants. The
Company issues new shares from its authorized but unissued share
pool.




As
previously noted, the Company adopted the provisions of SFAS 123(R),
“Share-Based Payment,” effective January 1, 2006. As permitted by SFAS 123(R),
the Company has elected to use the modified prospective transition method and
therefore financial results for prior periods have not been restated. Under this
transition method, we will apply the provisions of SFAS123(R) to new awards and
the awards modified, repurchased, or cancelled after January 1, 2006.
Additionally, the Company will recognize compensation expense for the unvested
portion of awards outstanding over the remainder of the service period. The
compensation cost recorded for these awards will be based on their fair value at
grant date as calculated for the pro forma disclosures required by Statement
123(R) less the cost of estimated forfeitures. SFAS 123(R) requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent
periods to reflect actual forfeitures. SFAS 123(R) also requires that cash flows
related to share-based awards to employees that result in tax benefits in excess
of recognized cumulative compensation cost (excess tax benefits) be classified
as financing cash flows.




49




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




Pre-tax
stock-based employee compensation expense was approximately $1,440,000 ($963,000
after tax) for 2008, $1,524,000 ($1,070,000 after tax) for 2007, and $1,514,000
($1,129,000 after tax) for 2006.




Stock Options— Stock
options are granted at an exercise price equal to the fair market value of the
Company’s common stock at the date of grant except for grants of incentive stock
options to owners of greater than 10 percent of the Company’s voting securities
which must be made at 110 percent of the fair market value of the Company’s
common stock. Options generally vest ratably over a period of five years and
expire in 10 years, except to owners of greater than 10 percent of the Company’s
voting securities, which expire in five years.




As
prescribed by SFAS 123(R), the Company estimates the fair value of stock options
as of the date of grant using the Black-Scholes option pricing model. The
Company has not granted stock options to employees since 2004. Transactions
involving the Marine Products stock options for the year ended December 31, 2008
were as follows:


Shares
                                                                    
                                                                    Weighted
      Average
                                                                      Exercise
      Price
                                                                    
                                                                    Weighted
      Average
                                                                      Remaining
                                                                      Contractual
      Life
                                                                    
                                                                    Aggregate
      Intrinsic
                                                                      ValueOutstanding
      at January 1, 2008
                                                                    
                                                                    
                                                                    1,670,124
                                                                    
                                                                    $
                                                                    3.03
                                                                    
                                                                    3.1
      yearsGranted
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    N/AExercised
                                                                    
                                                                    
                                                                    (675,902
                                                                    )
                                                                    
                                                                    3.22
                                                                    
                                                                    N/AForfeited
                                                                    
                                                                    
                                                                    (4,050
                                                                    )
                                                                    
                                                                    8.88
                                                                    
                                                                    N/AExpired
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    
                                                                    —
                                                                    
                                                                    N/AOutstanding
      at December 31, 2008
                                                                    
                                                                    
                                                                    990,172
                                                                    
                                                                    $
                                                                    2.88
                                                                    
                                                                    2.5
      years
                                                                    
                                                                    $
                                                                    2,713,000Exercisable
      at December 31, 2008
                                                                    
                                                                    
                                                                    981,022
                                                                    
                                                                    $
                                                                    2.79
                                                                    
                                                                    2.5
      years
                                                                    
                                                                    $
                                                                    2,776,000




The
total intrinsic value of share options exercised was approximately $3,542,000 in
2008, $2,243,000 during 2007, and $2,813,000 during 2006. Tax benefits
associated with the exercise of non-qualified stock options during 2008 were
approximately $468,000. There were no tax benefits associated with the exercise
of stock options during 2007 or 2006, because all of the options exercised were
incentive stock options which do not generate tax deductions for the
Company.




Restricted Stock—
Marine Products has granted employees two forms of restricted stock; time lapse
restricted and performance restricted. Time lapse restricted shares vest after a
certain stipulated number of years from the grant date, depending on the terms
of the issue. Prior to 2004, the Company issued time lapse restricted shares
that vest over ten years. Beginning in 2004, the Company issued time lapse
restricted shares that vest in 20 percent increments starting with the second
anniversary of the grant, over the six year period beginning on the date of
grant. During these years, grantees receive all dividends declared and retain
voting rights for the shares. The performance restricted shares are granted, but
not earned and issued, until certain five-year tiered performance criteria are
met. The performance criteria are predetermined market prices of Marine
Products’ common stock. On the date the common stock appreciates to each level
(determination date), 20 percent of performance shares are earned. Once earned,
the performance shares vest five years from the determination date. After the
determination date, the grantee will receive all dividends declared and also
voting rights to the shares.




The
agreements under which the restricted stock is issued provide that shares
awarded may not be sold or otherwise transferred until restrictions established
under the stock plans have lapsed. Upon termination of employment from the
Company (other than due to death, disability or retirement on or after age 65),
shares with restrictions must be returned to the Company.




50




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




The
following is a summary of the changes in non-vested restricted shares for the
year ended December 31, 2008:


Shares
                          
                          
                          Weighted
      Average
                            Grant-Date
      Fair
                            ValueNon-vested
      shares at January 1, 2008
                          
                          
                          525,350
                          
                          
                          $
                          9.79Granted
                          
                          
                          194,000
                          
                          
                          
                          7.08Vested
                          
                          
                          (107,450
                          )
                          
                          
                          10.50Forfeited
                          
                          
                          (11,200
                          )
                          
                          
                          9.14Non-vested
      shares at December 31, 2008
                          
                          
                          600,700
                          
                          
                          $
                          9.93




The
fair value of restricted stock awards is based on the market price of the
Company’s stock on the date of grant and is amortized to compensation expense on
a straight line basis over the requisite service period. The weighted average
grant date fair value of these restricted stock awards was $7.08 in 2008, $9.54
in 2007 and $11.24 in 2006. The total fair value of shares vested was
approximately $1,239,000 during 2008, $2,094,000 during 2007, and $1,267,000
during 2006. The tax benefits for compensation tax deductions in excess of
compensation expense related to restricted shares was credited to capital in
excess of par value aggregating $154,000 in 2008, $431,000 in 2007, and $296,000
in 2006. The excess tax deductions are classified as financing cash flows in
accordance with SFAS 123(R).




Other
Information—As of December 31, 2008 total unrecognized compensation cost
related to non-vested restricted shares was approximately $4,409,000 which is
expected to be recognized over a weighted-average period of 3.8 years. Unearned
compensation cost associated with non-vested restricted shares of $3,540,000
previously reflected as deferred compensation in stockholders’ equity at January
1, 2006 was reclassified to capital in excess of par value as required by SFAS
123(R) during 2006. As of December 31, 2008, total unrecognized compensation
cost related to non-vested stock options was approximately $28,000 which is
expected to be recognized over a weighted-average period of less than one
year.




The
Company received cash from options exercised of $38,000 in 2008, $135,000 in
2007, and $178,000 in 2006. These cash receipts are classified as financing cash
flows in the accompanying consolidated statements of cash flows. The fair value
of shares tendered to exercise employee stock options totaled approximately
$2,152,000 in 2008, $288,000 in 2007, and $295,000 in 2006 and have been
excluded from the consolidated statements of cash flows.




NOTE
11: FAIR VALUE MEASUREMENTS




The
Company adopted SFAS 157, “Fair Value Measurements,” and FSP 157-2, “Effective
Date of FASB Statement No. 157,” in the first quarter of 2008. SFAS 157 defines
fair value, establishes a framework for measuring fair value and expands
disclosure requirements about items measured at fair value. SFAS 157 does not
require any new fair value measurements. It applies to accounting pronouncements
that already require or permit fair value measures. As a result, the Company
will not be required to recognize any new assets or liabilities at fair value.
FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis.




SFAS
157 establishes a fair value hierarchy that distinguishes between assumptions
based on market data (observable inputs) and the Company’s assumptions
(unobservable inputs). The hierarchy consists of three broad levels as
follows:


Level
      1 – Quoted market prices in active markets for identical assets or
      liabilitiesLevel
      2 – Inputs other than level 1 that are either directly or indirectly
      observableLevel
      3 – Unobservable inputs developed using the Company’s estimates and
      assumptions, which reflect those that market participants would
      use.




Securities:




The
Company determines the fair value of marketable securities that are
available-for-sale and of investments in the non-qualified plan that are trading
using quoted market prices. The adoption of SFAS 157 had no effect on the
Company’s valuation of these marketable securities or
investments.


51




Notes
to Consolidated Financial Statements


Marine
Products Corporation and Subsidiaries


Years
ended December 31, 2008, 2007 and 2006




The
following table summarizes the valuation of financial instruments measured at
fair value on a recurring basis in the balance sheet as of December 31,
2008:


Fair
      value Measurements at December 31, 2008 with(in
      thousands)
                                    
                                    Quoted
      prices in
                                      active
      markets for
                                      identical
      assets
                                      (Level
      1)
                                    
                                    
                                    Significant
      other
                                      observable
      inputs
                                      (Level
      2)
                                    
                                    
                                    Significant
                                      unobservable
      inputs
                                      (Level
      3)Assets:Trading
      securities
                                    
                                    $
                                    3,742
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —Available-for-sale
      securities
                                    
                                    $
                                    46,752
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities —including an amendment of FASB
Statement No. 115.” This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, including interim periods within that
fiscal year. The Company did not elect the fair value option for any of its
existing financial instruments and the Company has not determined whether or not
it will elect this option for financial instruments it may acquire in the
future.


52




Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure




None.




Item
9A. Controls and Procedures




Evaluation of disclosure controls
and procedures— The Company maintains disclosure controls and procedures
that are designed to ensure that information required to be disclosed in its
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the Commission’s rules and forms, and that such
information is accumulated and communicated to its management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.




As
of the end of the period covered by this report, December 31, 2008 (the
“Evaluation Date”), the Company carried out an evaluation, under the supervision
and with the participation of its management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of its disclosure controls and procedures. Based upon this evaluation,
the Chief Executive Officer and the Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of the Evaluation
Date.




Management’s report on internal
control over financial reporting— Management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Management’s report on internal control over financial reporting is included on
page 29 of this report. Grant Thornton LLP, the Company’s independent registered
public accounting firm, has audited the effectiveness of internal control
as of December 31, 2008 and issued a report thereon which is included on page 30
of this report.




Changes in internal control over
financial reporting— There were no changes in the Company’s internal
control over financial reporting that occurred during the Company’s most
recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




Item
9B. Other Information




None.


53




PART
III




Item
10. Directors, Executive Officers and Corporate Governance




Information
concerning directors and executive officers will be included in the Marine
Products Proxy Statement for its 2009 Annual Meeting of Stockholders, in the
section titled “Election of Directors.” This information is incorporated herein
by reference. Information about executive officers is contained on page 16 of
this document.




Audit
Committee and Audit Committee Financial Expert




Information
concerning the Audit Committee of the Company and the Audit Committee Financial
Expert(s) will be included in the Marine Products Proxy Statement for its 2009
Annual Meeting of Stockholders, in the section titled “Corporate Governance and
Board of Directors, Committees and Meetings – Audit Committee.” This information
is incorporated herein by reference.




Code
of Ethics




Marine
Products has a Code of Business Conduct that applies to all employees. In
addition, the Company has a Code of Business Conduct and Ethics for Directors
and Executive Officers and Related Party Transaction Policy. Both of these
documents are available on the Company’s website at www.marineproductscorp.com.
Copies are also available at no extra charge by writing to Attn.: Human
Resources, Marine Products Corporation, 2801 Buford Highway, Suite 520, Atlanta,
Georgia 30329. Marine Products intends to satisfy the disclosure requirement
under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision
of its code of ethics that relates to any elements of the code of ethics
definition enumerated in SEC rules by posting such information on its internet
website, the address of which is provided above.




Section
16(a) Beneficial Ownership Reporting Compliance




Information
regarding compliance with Section 16(a) of the Exchange Act will be included
under “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s
Proxy Statement for its 2009 Annual Meeting of Stockholders, which is
incorporated herein by reference.




Item
11. Executive Compensation




Information
concerning director and executive compensation will be included in the Marine
Products Proxy Statement for its 2009 Annual Meeting of Stockholders, in the
sections titled “Compensation Committee Interlocks and Insider Participation,”
“Director Compensation,” “Compensation Discussion and Analysis,” “Compensation
Committee Report,” and “Executive Compensation.” This information is
incorporated herein by reference.




Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters




Information
concerning security ownership will be included in the Marine Products Proxy
Statement for its 2009 Annual Meeting of Stockholders, in the sections titled,
“Capital Stock” and “Election of Directors.” This information is incorporated
herein by reference.


54




Securities
Authorized for Issuance Under Equity Compensation Plans




The
following table sets forth certain information regarding equity compensation
plans as of December 31, 2008.


Plan
      Category
                  
                  (A)
                    Number
      of Securities To
                    Be
      Issued Upon Exercise of
                    Outstanding
      Options,
                    Warrants
      and Rights
                  
                  
                  (B)
                    Weighted
      Average
                    Exercise
      Price of
                    Outstanding
      Options,
                    Warrants
      and Rights
                  
                  
                  (C)
                    Number
      of Securities
                    Remaining
      Available for
                    Future
      Issuance Under
                    Equity
      Compensation
                    Plans
      (Excluding
                    Securities
      Reflected in
                    Column
      (A))Equity
      compensation plans approved by securityholders
                  
                  
                  990,172
                  
                  
                  $
                  2.88
                  
                  
                  
                  1,784,278
                  (1)Equity
      compensation plans not approved by securityholders
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  
                  990,172
                  
                  
                  $
                  2.88
                  
                  
                  
                  1,784,278





(1)
              All
      of the securities can be issued in the form of restricted stock or other
      stock awards.




See “NOTE
10: EMPLOYEE BENEFIT PLANS” to the Consolidated Financial Statements for
information regarding the material terms of the equity compensation
plans.




Item
13. Certain Relationships and Related Transactions, and Director
Independence




Information
concerning certain relationships and related party transactions will be included
in the Marine Products Proxy Statement for its 2009 Annual Meeting of
Stockholders, in the section titled “Certain Relationships and Related Party
Transactions.” Information regarding director independence will be included in
the Marine Products Proxy Statement for its 2009 Annual Meeting of Stockholders
in the section titled “Director Independence and NYSE Requirements.” This
information is incorporated herein by reference.




Item
14. Principal Accounting Fees and Services




Information
regarding principal accountant fees and services will be included in the section
titled, “Independent Registered Public Accountants” in the Marine Products Proxy
Statement for its 2009 Annual Meeting of Stockholders. This information is
incorporated herein by reference.


55




PART
IV




Item
15. Exhibits and Financial Statement Schedules




Consolidated
Financial Statements, Financial Statement Schedule and Exhibits.


1.
            Consolidated
      financial statements listed in the accompanying Index to Consolidated
      Financial Statements and Schedule are filed as part of this
      report.2.
            The
      financial statement schedule listed in the accompanying Index to
      Consolidated Financial Statements and Schedule is filed as part of this
      report.3.
            Exhibits
      listed in the accompanying Index to Exhibits are filed as part of this
      report. The following such exhibits are management contracts or
      compensatory plans or arrangements:10.1
            Marine
      Products Corporation 2001 Employee Stock Incentive Plan (incorporated
      herein by reference to Exhibit 10.1 to the Form 10 filed on February 13,
      2001).10.6
            Marine
      Products Corporation 2004 Stock Incentive Plan (incorporated herein by
      reference to Appendix B to the Definitive Proxy Statement filed on March
      24, 2004).10.7
            Form
      of stock option grant agreement under the 2001 Employee Stock Incentive
      Plan (incorporated herein by reference to Exhibit 10.7 to the Form 10-K
      filed on March 21, 2003).10.8
            Form
      of time lapse restricted stock grant agreement under the 2001 Employee
      Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
      the Form 10-K filed on March 21, 2003).10.9
            Form
      of performance restricted stock grant agreement under the 2001 Employee
      Stock Incentive Plan (incorporated herein by reference to Exhibit 10.9 to
      the Form 10-K filed on March 21, 2003).10.10
            Form
      of stock option grant agreement under the 2004 Stock Incentive Plan
      (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed
      on November 1, 2004).10.11
            Form
      of time lapse restricted stock grant agreement under the 2004 Stock
      Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the
      Form 10-Q filed on November 1, 2004).10.12
            Form
      of performance restricted stock grant agreement under the 2004 Stock
      Incentive Plan (incorporated herein by reference to Exhibit 10.9 to the
      Form 10-Q filed on November 1, 2004).10.13
            Supplemental
      Retirement Plan (incorporated herein by reference to Exhibit 10.16 to the
      Form 10-K filed on March 15, 2005).10.14
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 2007 (incorporated by reference to Exhibit 10.17 to the Form
      10-K filed on March 2, 2007).10.15
            Summary
      of Compensation Arrangements with Non-Employee Directors as of February
      28, 2007 (incorporated by reference to Exhibit 10.18 to the Form 10-K
      filed on March 2, 2007).10.16
            First
      Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
      Plan (incorporated by reference to Exhibit 10.19 to the Form 10-K filed on
      March 2, 2007).10.17
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 2008 (incorporated herein by reference to Exhibit 10.20 to
      the Form 10-K filed on March 4, 2008).10.18
            Summary
      of Compensation Arrangements with Non-Employee Directors as of February
      28, 2008 (incorporated herein by reference to Exhibit 10.21 to the Form
      8-K filed on March 4, 2008).


56





10.19
            Performance
      Based Compensation Agreement between James A. Lane, Jr. and Chaparral
      Boats, Inc. (incorporated herein by reference to Exhibit 10.1 to the Form
      8-K filed on April 25, 2008).10.20
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 2009


57




Exhibits
(inclusive of item 3 above):


Exhibit
      Number
            
            Description3.1
            
            (A)
      Articles of Incorporation of Marine Products Corporation (incorporated
      herein by reference to Exhibit 3.1 to the Form 10 filed on February
      13, 2001).(B)
      Certificate of Amendment of Certificate of Incorporation of Marine
      Products Corporation executed on June 8, 2005 (incorporated herein by
      reference to Exhibit 99.1 to the current report on Form 8-K filed on June
      9, 2005).3.2
            
            Bylaws
      of Marine Products Corporation (incorporated herein by reference to
      Exhibit 3.1 to the Form 8-K filed on October 25, 2007).4
            
            Form
      of Common Stock Certificate of Marine Products Corporation (incorporated
      herein by reference to Exhibit 4.1 to the Form 10 filed on February 13,
      2001).10.1
            
            Marine
      Products Corporation 2001 Employee Stock Incentive Plan (incorporated
      herein by reference to Exhibit 10.1 to the Form 10 filed on February 13,
      2001).10.2
            
            Agreement
      Regarding Distribution and Plan of Reorganization, dated February 12,
      2001, by and between RPC, Inc. and Marine Products Corporation
      (incorporated herein by reference to Exhibit 10.2 to the Form 10 filed on
      February 13, 2001).10.3
            
            Employee
      Benefits Agreement, dated February 12, 2001, by and between RPC, Inc.,
      Chaparral Boats, Inc. and Marine Products Corporation (incorporated herein
      by reference to Exhibit 10.3 to the Form 10 filed on February 13,
      2002).10.4
            
            Transition
      Support Services Agreement, dated February 12, 2001, by and between RPC,
      Inc. and Marine Products Corporation (incorporated herein by reference to
      Exhibit 10.4 to the Form 10 filed on February 13,
2001).10.5
            
            Tax
      Sharing Agreement, dated February 12, 2001, by and between RPC, Inc. and
      Marine Products Corporation (incorporated herein by reference to Exhibit
      10.5 to the Form 10 filed on February 13, 2001).10.6
            
            Marine
      Products Corporation 2004 Stock Incentive Plan (incorporated herein by
      reference to Appendix B to the Definitive Proxy Statement filed on March
      24, 2004).10.7
            
            Form
      of stock option grant agreement under the 2001 Employee Stock Incentive
      Plan (incorporated herein by reference to Exhibit 10.7 to the Form 10-K
      filed on March 21, 2003).10.8
            
            Form
      of time lapse restricted stock grant agreement under the 2001 Employee
      Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8 to
      the Form 10-K filed on March 21, 2003).10.9
            
            Form
      of performance restricted stock grant agreement under the 2001 Employee
      Stock Incentive Plan (incorporated herein by reference to Exhibit 10.9 to
      the Form 10-K filed on March 21, 2003).10.10
            
            Form
      of stock option grant agreement under the 2004 Stock Incentive Plan
      (incorporated herein by reference to Exhibit 10.1 to the Form 10-Q filed
      on November 1, 2004).10.11
            
            Form
      of time lapse restricted stock grant agreement under the 2004 Stock
      Incentive Plan (incorporated herein by reference to Exhibit 10.2 to
      the Form 10-Q filed on November 1, 2004).10.12
            
            Form
      of performance restricted stock grant agreement under the 2004 Stock
      Incentive Plan (incorporated herein by reference to Exhibit 10.3 to
      the Form 10-Q filed on November 1, 2004).10.13
            
            Supplemental
      Retirement Plan (incorporated herein by reference to Exhibit 10.16 to the
      Form 10-K filed on March 15, 2005).10.14
            
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 2007 (incorporated herein by reference to Exhibit 10.17 to
      the Form 10-K filed on March 2, 2007).10.15
            
            Summary
      of Compensation Arrangements with Non-Employee Directors as of February
      28, 2007 (incorporated herein by reference to Exhibit 10.18 to the Form
      10-K filed on March 2, 2007).10.16
            
            First
      Amendment to 2001 Employee Stock Incentive Plan and 2004 Stock Incentive
      Plan (incorporated herein by reference to Exhibit 10.19 to the Form 10-K
      filed on March 2, 2007).10.17
            
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 2008 (incorporated herein by reference to Exhibit 10.20 to
      the Form 10-K filed on March 4, 2008).10.18
            
            Summary
      of Compensation Arrangements with Non-Employee Directors as of February
      28, 2008 (incorporated herein by reference to Exhibit 10.21 to the Form
      10-K filed on March 4, 2008).10.19
            
            Performance
      Based Compensation Agreement between James A. Lane, Jr. and Chaparral
      Boats, Inc. (incorporated herein by reference to Exhibit 10.1 to the Form
      8-K filed on April 25, 2008).10.20
            
            Summary
      of ‘At-Will’ compensation arrangements with the Executive Officers as of
      February 28, 200921
            
            Subsidiaries
      of Marine Products Corporation (incorporated herein by reference to
      Exhibit 21 to the Form 10-K filed on March 4, 2008).23
            
            Consent
      of Grant Thornton LLP24
            
            Powers
      of Attorney for Directors31.1
            
            Section
      302 certification for Chief Executive Officer31.2
            
            Section
      302 certification for Chief Financial Officer32.1
            
            Section
      906 certification for Chief Executive Officer and Chief Financial
      Officer




Any
schedules or exhibits not shown above have been omitted because they are not
applicable.




58




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


Marine
      Products Corporation/s/
      Richard
      A. HubbellRichard
      A. HubbellPresident
      and Chief Executive OfficerMarch
      4, 2009




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.


Name
              
              Title
              
              Date/s/
      Richard
      A. Hubbell
              
              President
      and Chief Executive Officer
              
              March
      4, 2009Richard
      A. Hubbell
              
              (Principal Executive Officer)/s/
      Ben
      M. Palmer
              
              Chief
      Financial Officer
              
              March
      4, 2009Ben
      M. Palmer
              
              (Principal Financial and Accounting Officer)




The
Directors of Marine Products (listed below) executed a power of attorney,
appointing Richard A. Hubbell their attorney-in-fact, empowering him to sign
this report on their behalf.


R.
      Randall Rollins, Director
            James
      B. Williams, DirectorWilton
      Looney, Director
            James
      A. Lane, Jr., DirectorGary
      W. Rollins, Director
            Linda
      H. Graham, DirectorHenry
      B. Tippie, Director
            Bill
      J. Dismuke, Director


/s/
      Richard
      A. HubbellRichard
      A. HubbellDirector
      and as Attorney-in-factMarch
      4, 2009


59




INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS, REPORTS AND SCHEDULE




The
following documents are filed as part of this report.


FINANCIAL
      STATEMENTS AND REPORTS
                  
                  PAGEManagement’s
      Report on Internal Control Over Financial Reporting
                  
                  29Report
      of Independent Registered Public Accounting Firm on Internal Control Over
      Financial Reporting
                  
                  30Report
      of Independent Registered Public Accounting Firm on Consolidated Financial
      Statements
                  
                  31Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  
                  32Consolidated
      Statements of Operations for the three years ended December 31,
      2008
                  
                  33Consolidated
      Statements of Stockholders’ Equity for the three years ended December 31,
      2008
                  
                  34Consolidated
      Statements of Cash Flows for the three years ended December 31,
      2008
                  
                  35Notes
      to Consolidated Financial Statements
                  
                  36-52SCHEDULESchedule
      II — Valuation and Qualifying Accounts
                  
                  60




Schedules
not listed above have been omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.




SCHEDULE
II—VALUATION AND QUALIFYING ACCOUNTS


MARINE
PRODUCTS CORPORATION AND SUBSIDIARIES (in thousands of dollars)


For
      the years ended December 31, 2008, 2007 and 2006Description
                  
                  Balance
      at
                    Beginning
                    of
      Period
                  
                  
                  Charged
      to
                    Costs
      and
                    Expenses
                  
                  
                  Net
                    (Write-Offs)/
                    Recoveries
                  
                  
                  Balance
                    at
      End of
                    PeriodYear
      ended December 31, 2008Allowance
      for doubtful accounts
                  
                  $
                  41
                  
                  
                  $
                  —
                  
                  
                  $
                  (3
                  )
                  
                  $
                  38Deferred
      tax asset valuation allowance
                  
                  $
                  4,790
                  
                  
                  $
                  145
                  
                  
                  $
                  —
                  
                  
                  $
                  4,935Year
      ended December 31, 2007Allowance
      for doubtful accounts
                  
                  $
                  52
                  
                  
                  $
                  —
                  
                  
                  $
                  (11
                  )
                  
                  $
                  41Deferred
      tax asset valuation allowance
                  
                  $
                  3,339
                  
                  
                  $
                  1,451
                  
                  
                  $
                  —
                  
                  
                  $
                  4,790Year
      ended December 31, 2006Allowance
      for doubtful accounts
                  
                  $
                  58
                  
                  
                  $
                  —
                  
                  
                  $
                  (6
                  )
                  
                  $
                  52Deferred
      tax asset valuation allowance
                  
                  $
                  2,082
                  
                  
                  $
                  1,257
                  
                  
                  $
                  —
                  
                  
                  $
                  3,339


60




SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)


First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  Fourth(in
      thousands except per share data)2008Net
      sales
                  
                  $
                  65,542
                  
                  
                  $
                  55,734
                  
                  
                  $
                  31,582
                  
                  
                  $
                  22,764Gross
      profit
                  
                  
                  13,464
                  
                  
                  
                  11,027
                  
                  
                  
                  5,104
                  
                  
                  
                  2,350Net
      income (loss)
                  
                  
                  4,132
                  
                  
                  
                  3,896
                  
                  
                  
                  684
                  
                  
                  
                  (1,126
                  )Earnings
      per share — basic (a)
                  
                  
                  0.12
                  
                  
                  
                  0.11
                  
                  
                  
                  0.02
                  
                  
                  
                  (0.03
                  )Earnings
      per share — diluted (a)
                  
                  $
                  0.11
                  
                  
                  $
                  0.11
                  
                  
                  $
                  0.02
                  
                  
                  $
                  (0.03
                  )2007Net
      sales
                  
                  $
                  64,976
                  
                  
                  $
                  67,869
                  
                  
                  $
                  52,481
                  
                  
                  $
                  58,947Gross
      profit
                  
                  
                  13,964
                  
                  
                  
                  14,934
                  
                  
                  
                  11,266
                  
                  
                  
                  12,299Net
      income
                  
                  
                  3,917
                  
                  
                  
                  5,275
                  
                  
                  
                  3,229
                  
                  
                  
                  4,002Earnings
      per share — basic (a)
                  
                  
                  0.10
                  
                  
                  
                  0.14
                  
                  
                  
                  0.09
                  
                  
                  
                  0.11Earnings
      per share — diluted (a)
                  
                  $
                  0.10
                  
                  
                  $
                  0.14
                  
                  
                  $
                  0.08
                  
                  
                  $
                  0.11




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






61