The Marine Industry

For 2010, 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 2009 (latest data available to us) retail expenditures of approximately $31 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. Non-active boat owners cite the lack of leisure time as the primary reason for not using their boats.

The NMMA conducts various surveys of pleasure boat industry trends, and the most recent surveys indicate that 66 million adults in the

United States

participated in recreational boating in 2009, a decrease of six 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 unit sales are sterndrive boats.

Industry sales of new sterndrive boats in the United States during 2010 totaling 14,922 (source: Info-Link Technologies, Inc.) accounted for approximately 33 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 $0.7 billion, or an average retail price per boat of approximately $47,000. Management believes that the five largest states for boat sales at the present time are Florida, Texas, California, North Carolina and New York. Marine Products has dealers in each of these states.

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 $1.9 billion in retail sales during 2010. The table below reflects the estimated sales within this segment by category for 2010 and 2009, ranked by 2010 retail sales (source: Info-Link Technologies, Inc.):

	2010				2009
	Boats		Sales ($ B)		Boats		Sales ($ B)
Sterndrive Boats		14,922		$ 0.7		21,655		$ 1.0
Outboard Boats		23,031		0.8		28,545		1.0
Inboard Boats		5,290		0.3		6,880		0.4
Jet Boats		2,518		0.1		2,522		0.1
TOTAL		45,761		$ 1.9		59,602		$ 2.5

Chaparral’s products are categorized as sterndrive and inboard boats and Robalo’s products are categorized as outboard boats. As shown in the table above, the sterndrive boat segment experienced the largest percentage decline in unit sales between 2009 and 2010. The Company believes that the larger decline in unit sales of sterndrive boats in 2010 was due to these units’ higher average retail selling prices, which made consumers more reluctant to purchase them during the recent recession.

The recreational boat manufacturing market remains highly fragmented with the exception of Brunswick Corporation, which has acquired and currently operates a number of recreational boat brands. 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, 2010 (latest information available), the top five sterndrive manufacturers, which includes Chaparral, have a market share of approximately 52 percent. Chaparral’s market share in units during the period was 7.5 percent, which represents a decrease of 0.4 percent compared to the 12 months ended December 31, 2009. The Company believes that Chaparral’s market share declined during this period because of competition from other manufacturers and dealers who were forced to liquidate inventory during 2009 and 2010 because of pressure from floorplan lenders or other financial constraints.

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, the cost of certain components and the impact of environmental regulation have increased the cost of boats in recent years. As the cost of certain raw materials used in the manufacturing process has increased, the cost of boat ownership has increased as well, prompting consumers either to buy a smaller or less expensive 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 many manufacturers, and tight credit availability by floor plan lenders; and

· a high degree of fragmentation and competition among the large number of sterndrive and outboard recreational boat manufacturers.

Forward-Looking Statement:

Certain statements and information included within this Web site contain and constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include statements regarding our belief that our dealer inventory and current production levels are conservative as we participate in the 2012 winter boat show season; our belief that our smaller models will increase unit sales in a segment in which we have an opportunity to increase market share; our hope to capture additional market share as purchasers of these entry-level models purchase larger Chaparral or Robalo models in the future; our belief that these entry-level Chaparral and Robalo models will maintain our profitability because of higher production volumes which increase manufacturing efficiencies; our intention to continue seeking the most advantageous purchasing arrangements from our suppliers; 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 increase in prices of certain commodities is likely to lead to higher costs in 2012 and that we may not be able to increase prices to compensate for increased costs and that the Company may not be able to implement manufacturing strategies that will significantly reduce usage of raw materials that will compensate for these increased costs; our belief that it is likely that these increased commodity prices will negatively impact our operating results in 2012 compared to 2011; our belief that our product liability insurance will be adequate; our belief that we have not suffered an increased risk of default among our municipal securities investments; 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 ability to execute stated business and financial strategies in the future to better manage our Company; our belief that net sales will increase moderately in 2012 compared to 2011 and that our operating results will improve; our belief that indications are that retail demand in recreational boating has stabilized and may be increasing; our belief that our operating results should moderately improve due to higher volumes and an improved gross margin from improved product efficiencies and cost absorption; our belief that retail sales will increase in 2012 and that such increase will be modest due to slowly improving consumer confidence; our belief that advertising and consumer targeting efforts will benefit the industry and Marine Products; our anticipation that the Company will continue to be challenged by the effect of an uncertain level of consumer demand; our belief that emphasizing entry-level models in our Chaparral and Robalo product lines will appeal to value-conscious boaters who want to buy a new boat, as well as first-time boat buyers who are interested in a smaller investment in boat ownership; our belief that these new products will increase our net sales and enhance our profitability by improving our cost absorption; our belief that these models will increase our sales in market segments in which we would like to increase our market share, and that these models will encourage consumers of these products to purchase larger, more expensive boats from us in the future; our belief that we do not expect to report any gains similar to those reported as Other Income during 2011 in 2012; expectations about the amount of contributions to our defined benefit plan and capital expenditures during 2012 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. Additional discussion of factors that could cause the actual results to differ materially from management's projections, forecasts, estimates and expectations is contained in Marine Products' Form 10-K, filed with the Securities and Exchange Commission for the year ending December 31, 2011.

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