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WASHINGTON, D.C. 20549

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 28, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number 333-29141

(Exact Name of Registrant as Specified in Its Charter)

Registrant's telephone number, including area code: (281) 876-0080

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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. Yes [X] 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 an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [ ] No [X]

The common stock of the registrant is not publicly registered or traded and, therefore, no market value whether held by affiliates or non-affiliates can be readily ascertained.

There were 252,000 shares of the Registrant's Class A Common Stock outstanding as of the close of business on March 27, 2003, all of which are held by Merchants Metals Holding Company.

NONE

MMI Products, Inc. ("the Company"), a Delaware corporation and a wholly owned subsidiary of Merchants Metals Holding Company ("MMHC"), was organized in 1953. MMHC was acquired by Citicorp Venture Capital, Ltd. and members of the Company's management in 1986.

We are a leading manufacturer and distributor of products used in the North American public "infrastructure", nonresidential and residential construction industries. For the year ended December 28, 2002, we believe approximately 70% of our total net sales were for nonresidential applications. Our products are segregated into two reporting segments: Fence and Concrete Construction Products, which accounted for 57.6% and 42.4% of our total net sales, respectively, for the year ended December 28, 2002. We have established leading market positions in each of our segments. We offer high quality products and have extensive distribution capabilities. Additionally, we realize cost savings by combining the requirements for steel rod, our main raw material, for each of our segments. As a result, we are one of the largest buyers of steel rod in the United States and believe we are able to consistently purchase steel rod at a discount to industry standards.

The products in our Fence segment include chain link fence fabric, fittings, ornamental iron fence and other related products which are manufactured and distributed by us, as well as wood, vinyl and aluminum products which are primarily manufactured by third parties and distributed by us. The products in our Concrete Construction Products segment include various classes of wire mesh, which serve as a structural reinforcing grid for concrete construction, including all types of buildings, roads, bridges, runways and sewage and drainage projects. In addition, the Concrete Construction Products segment produces over 2,000 specialized accessories used in concrete construction ("concrete accessories"), including products used to position and install steel reinforcing bar and wire mesh reinforcing grid.

We have an extensive and well-positioned distribution network, consisting of 75 company-operated manufacturing and distribution centers, located in 30 states. Our distribution network serves over 9,000 customers, including construction contractors, fence wholesalers, industrial manufacturers, highway construction contractors and fabricators of concrete reinforcing bar. We manufacture products at 19 principal manufacturing facilities strategically located throughout the United States. In addition to serving customers nationwide, our distribution centers and production facilities are well positioned to serve areas of high population and construction growth. We currently have manufacturing or distribution facilities in each of the ten states with the largest projected increases in population through 2025.

We maintain inventory in distribution centers for fence and concrete accessories products. Inventories will generally be at their highest levels between the months of April and October when most market activity occurs in the Fence segment. We also purchase our raw material in large quantities based upon expected usage for a period of up to nine months. Accounts receivable also rise during these months due to the seasonal fluctuations in sales.

We have one customer that accounted for more than 10% of the Concrete Construction Products segment net sales in fiscal year 2002; however, this customer did not account for more than 10% of our consolidated net sales.

All of our outstanding capital stock is owned by MMHC. An affiliate of Citicorp Venture Capital, Ltd., Court Square Capital, Limited, together with its affiliates, employees and other persons affiliated or otherwise associated with Citicorp Venture Capital, own 49.5% of the total voting power of MMHC. In addition, such persons may elect to convert their stock into stock of another class and by so doing represent 82% of the total voting power of MMHC.

We have two subsidiaries, MMI Management, Inc. and Ivy Steel & Wire, Inc. MMI Management, Inc. has a 99% limited partnership interest in, and the Company holds a one percent general partnership interest in, MMI Management Services, L.P., the entity which provides us use of its intellectual property and provides general management, business development, finance, and purchasing services. On December 30, 2002, the Company acquired Structural Reinforcement Products, Inc. ("SRP"). On December 31, 2002 SRP's name was changed to Ivy Steel & Wire, Inc.

Hallett FSC, Inc., a subsidiary of the Company and an entity that had remained inactive since it was acquired as part of the Hallett Wire Products Company in February 2000, was dissolved in July, 2002.

Our corporate headquarters are located at 515 West Greens Road, Suite 710, Houston, Texas 77067. Our telephone number is (281) 876-0080.

The 2002, 2001, and 2000 fiscal years referred to in this Annual Report are the fifty-two week periods ended December 28, 2002, December 29, 2001, and December 30, 2000, respectively.

Historically, we have achieved a significant portion of our growth through business acquisitions. The Company has completed 3 acquisitions since fiscal 2000, aggregating approximately $68.9 million in consideration, including one acquisition in fiscal 2003. We completed one acquisition each in 2000 and 2001, and we had no acquisitions in fiscal 2002.

On February 3, 2000, the Company purchased all of the issued and outstanding capital stock of Hallett Wire Products Company, a Minnesota Corporation ("Hallett"). Hallett manufactured welded wire mesh at facilities located in St. Joseph, Missouri and Kingman, Arizona. Hallett had net sales of approximately $37 million for the year ended December 31, 1999. We funded the total acquisition price of $40.0 million from our revolving credit facility.

On February 1, 2001, the Company purchased certain assets of Page Two, Inc. and Kewe 3, Inc. for cash of $2.0 million, which we funded from our revolving credit facility. The assets consisted primarily of a production line for the application of an aluminum coating on strand wire located in Bartonville, Illinois, as well as accounts receivable, inventories and goodwill. The machinery and equipment was moved to a Company owned facility in New Paris, Indiana in late 2002.

On December 30, 2002, the Company purchased all of the issued and outstanding shares of SRP. The purchase price recorded in fiscal 2003 by the Company was approximately $27.4 million, including $3.6 million for the present value of contracted installment payments. The $23.8 million cash disbursement was funded from our revolving credit facility. Additional acquisition costs could be recorded contingent upon the operating and financial success of the acquired facility. SRP manufactures welded wire mesh in a "state-of-the-art" facility located in Hazleton, Pennsylvania.

We report our results of operations in two business segments - Fence and Concrete Construction Products. Both segments share common factors in relation to seasonality of business and raw materials.

Seasonality and Cyclicality. Our products are used in the nonresidential, infrastructure, and residential construction industries. These industries are both cyclical and seasonal, and changes in demand for construction services have a material impact on our sales and profitability. The highest level of sales and profitability occur during the times of the year when climatic conditions are most conducive to construction activity. Accordingly, sales will typically be higher in the second and third quarters and will be lower in the first and fourth quarters. In an effort to mitigate cyclical influences, we have implemented the following strategies to help offset the impact of any such downturns on our operating results and liquidity:

• increased our focus on products used in the nonresidential and infrastructure construction industries, which over the years have tended to be less cyclical than the residential construction industry;
• positioned our Concrete Construction Products segment to benefit from anticipated increases in infrastructure spending;
• expanded our distribution network to serve diverse areas of high population growth, as well as to limit the effects of any particular regional economic downturn.

Raw Materials. Our manufactured products are produced primarily from steel rod. Because both business segments require large quantities of the same raw material, we purchase steel rod in significantly larger quantities than would be necessary if the business segments were part of independent enterprises. Because of such large volume purchases, we believe that we typically purchase steel rod at a discount to industry standards. Since steel rod cost comprises a substantial portion of cost of goods sold (approximately 22% in fiscal year 2002), we believe such cost savings provide a competitive advantage.

Approximately half of our annual steel rod purchased is produced overseas. We purchase steel rod from several suppliers overseas and in the United States. The ample availability of steel rod provides us with many purchasing options and, as a result, we are not reliant on any one supplier.

We will normally negotiate quantities and pricing on a quarterly basis for both domestic and foreign steel rod purchases. Because all agreements for the purchase of steel rod, whether foreign or domestic, are denominated in U.S. dollars, there are no significant risks of fluctuations in foreign currency exchange rates with respect to such agreements.

Our Fence segment is made up of two operating divisions, Merchants Metals and Anchor Die Cast.

Merchants Metals is headquartered in Houston, Texas. Its operations are located throughout the United States and managed by geographic regions. Anchor Die Cast, a manufacturer of fence fittings, is located in Harrison, Arkansas. Our Fence segment contributed 57.6%, 53.8 %, and 52.1% of consolidated net sales in fiscal years 2002, 2001, and 2000, respectively.

Production Process. Our chain link fence manufacturing process is virtually the same at each manufacturing facility. The dominant manufacturing process is "galvanized after weaving," where after wire drawing and weaving processes, the produced roll of chain link fabric is passed through molten zinc which clings to the surface to protect against corrosion and enhance appearance.

The segment also produces other types of coated wire fabric, including PVC coated, aluminum coated, and "galvanized before weaving". In addition, vinyl coatings are applied to the pipe, tubing, and fittings used with vinyl coated chain link fabric. Anchor Die Cast manufactures a full line of aluminum die cast and galvanized pressed steel fittings.

Products. Our Fence segment is one of the largest producers and a major distributor of hot dipped galvanized and vinyl coated chain link fence systems in the United States. The segment manufactures chain link fence systems at eight principal facilities.

Chain link fence systems include:

• aluminized chain link fence fabric;
• a full line of aluminum die cast and galvanized pressed steel fittings;
• vinyl coated pipe and accessories; and
• gates.

Our Fence segment also distributes a variety of fence products purchased from third parties, including:

• pipe;
• tubing;
• wood;
• vinyl;
• ornamental iron and aluminum fence products;
• gates;
• hardware; and
• other related products.

Fence products are used in a variety of applications. The chain link fence products primarily serve as security fencing at nonresidential, residential, and governmental facilities, including the following:

• manufacturing and other industrial facilities;
• warehouses;
• schools;
• airports;
• correctional institutions;
• military facilities;
• recreational facilities;
• swimming pools; and
• dog kennels.

Polyvinyl chloride ("PVC") color coated wire, together with vinyl coated colored pipe, tubing and fittings, are used primarily to enhance the appearance of a chain link fence system (e.g., residential applications, tennis courts, etc.). Our Fence segment also offers other fence products that are used primarily in the construction of wood, vinyl, aluminum or ornamental iron fence systems, and in the construction of all sizes and styles of fence gates for the residential and nonresidential markets.

In fiscal year 2002, approximately 50% of our Fence segment sales represented products we manufactured. The remaining fence products were purchased as finished goods from third parties for distribution. Purchases of finished fence products are primarily from domestic manufacturers. We believe our full line of fence products provides a competitive advantage by giving us the ability to provide a "one-stop shop" solution for our customers, thereby promoting customer loyalty.

Sales and Marketing; Principal Customers. Our Fence segment sells fence products principally to fence wholesalers and to nonresidential and residential contractors. Although some of our fence products sales are made to the ultimate consumer by home centers, home centers are not a primary focus of our Fence segment's sales efforts. No customer accounted for more than 10% of our Fence segment revenues in fiscal year 2002.

The employees consist of inside and outside sales personnel, distribution center managers, sales managers, and customer service representatives. Sales generally are made through 53 regional distribution centers (eight of which are located at manufacturing facilities), located in 30 states. Because customer orders typically require rapid turn-around time, the distribution centers are strategically located near customers' facilities. The segment also distributes its fence products through a network of approximately 400 authorized dealers located across the country.

Competition. Our Fence segment's major national competitor is Master-Halco, Inc., which has a more extensive distribution network than Merchants Metals. Our segment also competes with other national and regional competitors.

Although the ability to sell fence products at a competitive price is an important competitive factor, we believe other factors, such as perceived quality of product and service and ability to deliver products to customers quickly, are also important to our fence customers.

Our Concrete Construction Products segment is made up of two divisions, Ivy Steel and Wire ("Ivy"), which produces welded wire reinforcement products (wire mesh), and Meadow Burke Products ("Meadow Burke"), which produces concrete accessories. Ivy is headquartered in Houston, Texas and Meadow Burke is headquartered in Tampa, Florida. Both companies segregate their management and operations by geographic region. Our Concrete Construction Products segment comprised 42.4%, 46.2% and 47.9% of our consolidated net sales in fiscal years 2002, 2001 and 2000, respectively.

Production Process. Our Concrete Construction Products segment manufactures its products at 11 principal facilities, which are strategically located throughout the U.S. Welded wire reinforcement is produced from wire drawn from low-carbon, "hot-rolled" steel rod that ranges in size from 1/8-inch diameter to 3/4-inch diameter, in both smooth and deformed patterns. Wire mesh is manufactured on large automatic welding machines that use the electrical resistance method. Welded wire reinforcement products are designed, engineered and manufactured based on customer project specifications which are custom manufactured and delivered to the end user.

Commodity building mesh generally is produced in roll and sheet form and is made with smaller diameter wire. Pipe mesh generally is custom-made to customer specifications. Additional steps in the process of producing structural wire mesh often include:

• cutting to exact sizes;
• bending the mesh to precise shapes; and
• preparing the surface to allow for the application of special coatings.

The concrete accessories manufacturing process also consists of drawing steel rod into wire that is then fed into automatic forming and resistance welding machines which produce the finished product. Additional manufacturing processes include:

• various punch press operations;
• threading;
• machining;
• painting; and
• epoxy coating of products.

In addition to steel rod, which is the primary raw material for concrete accessories, other raw materials are used such as:

• round and flat bar stock;
• slit steel coils; and
• reinforcing steel bars.

Products. The segment provides a variety of products for use in the commercial, residential, and infrastructure markets.

Welded wire reinforcement can be used in virtually any reinforced concrete application, including highways, bridges, airport taxiways, pipelines, sewage and drainage projects, and precast products.

Welded wire reinforcement products include:

In addition, the segment produces over 2,000 specialized accessories used in concrete construction, including products used to position and install steel reinforcing bar and wire mesh reinforcing grid.

Concrete accessories include the following:

Although the Concrete Construction Products segment manufactures most of its concrete accessories, certain products, such as plastic supports for steel reinforcing bar and certain types of form ties, are purchased from third parties for distribution by the segment. New products are continually introduced in an effort to provide a full line of concrete accessories to customers.

In fiscal year 2002, approximately 90% of the segment's sales represented manufactured products. The remaining 10% of the segment's sales were products purchased as finished goods from third parties for resale through our 22 regional distribution facilities.

Sales and Marketing; Principal Customers. The segment sells its products principally to the following persons:

• construction products distributors;
• industrial manufacturers (such as pre-casters of concrete products);
• large reinforcing bar fabricators;
• nonresidential building supply dealers; and
• construction contractors.

The sales force for the wire mesh product line, include inside and outside sales people and customer service representatives. Because orders for wire mesh products typically do not require the quick turn-around time required for concrete accessories, wire mesh products are shipped directly from one of the seven wire mesh manufacturing facilities to the customer, generally in truckload quantities. Most wire mesh production is in response to particular customer orders. Light wire mesh used for residential construction, however, is produced in standard patterns in anticipation of customer orders.

The sales force for concrete accessories consists of inside and outside sales people, customer service representatives and distribution center managers. Concrete accessories are distributed primarily through 15 regional distribution centers (four of which are located at concrete accessories manufacturing facilities). Because orders for concrete accessories typically require rapid turn-around time, these distribution centers are strategically located near customers' facilities.

There was one customer that accounted for more than 10% of the Concrete Construction Products segment net sales in fiscal year 2002, although this customer did not account for more than 10% of our consolidated net sales.

Competition. The segment's major competitor for wire mesh is Insteel Industries, Inc. The segment also faces regional competitors in the Northeastern, Midwestern, Southeastern, and Mid-Atlantic states. There is also competition from smaller regional manufacturers and wholesalers of wire mesh products.

The concrete accessories product line faces competition from several significant competitors. Dayton-Superior Corporation is the leading full line national participant in the concrete accessories market. Universal Form Clamp, Inc. also has distribution in most regions of the country. The segment also faces competition from other regional competitors, which offer a more limited number of products.

We believe our ability to produce a greater variety of wire mesh products in a wider geographical area provides a competitive advantage to major accounts, as well as the ability to provide custom-made products that fit our customers' individual needs. For concrete accessories, we believe overall product quality, price, extensive product selection and the ability to deliver products quickly are the principal competitive factors.

We believe our raw material costs (which we believe are lower than many of our competitors) enhance the segment's ability to compete effectively with respect to product price in the concrete construction market.

Environmental Regulation. We are subject to extensive and changing federal, state and local environmental laws and regulations including laws and regulations that:

• relate to air and water quality;
• impose limitations on the discharge of pollutants into the environment; and
• establish standards for the treatment, storage, and disposal of toxic and hazardous wastes.

Stringent fines and penalties may be imposed for noncompliance with these environmental laws and regulations. In addition, environmental laws could impose liability for costs associated with investigating and remediating contamination at our facilities or at third-party facilities at which we have arranged for the disposal treatment of hazardous materials.

As an owner and operator of real estate, we may be liable under applicable environmental laws for cleanup and other costs and damages, including tort, resulting from past or present spills or releases of hazardous or toxic substances on or from our properties. Liability under these laws may be imposed without regard to whether we knew of, or were responsible for, the presence of such substances on our property, and, in some cases, may not be limited to the value of the property. The presence of contamination, or the failure to properly clean it up, also may adversely affect our ability to sell, lease or operate our properties or to obtain additional capital funding. Currently, we have no remediation obligations at any property we own or lease. We are a potentially responsible party at various Superfund sites as a result of the off-site disposal of hazardous wastes. At all of these sites, we were a minor contributor of waste. While it is not possible to provide a definitive estimate of liability, giv en the limited amount of waste disposed, the potential liability is not expected to be material.

We believe our facilities are currently in substantial compliance with applicable environmental laws and regulations. Environmental laws continue to be amended and revised to impose stricter obligations, however, and compliance with future additional environmental requirements could necessitate capital outlays. We cannot predict the impact on our operations of any such future requirements, if enacted, although we believe such regulations would be enacted over time and would affect the industry as a whole.

Health and Safety Matters. Our facilities and operations are governed by laws and regulations, including the federal Occupational Safety and Health Act, relating to worker health and workplace safety. We believe we take appropriate precautions to protect employees and others from workplace injuries and harmful exposure to materials handled and managed at our facilities. While we do not anticipate we will be required in the near future to expend material amounts by reason of such health and safety laws and regulations, we are unable to predict the ultimate cost of compliance with these changing regulations.

As of March 28, 2003, we had approximately 2,400 full time employees. We are a party to seven collective bargaining agreements. These agreements are with seven unions, and as of March 28, 2003, a total of 87 employees were members. The seven collective bargaining agreements cover employees at the following facilities:

• Baltimore, Maryland⁽¹⁾;
• Tampa, Florida;
• Whittier, California;
• Palisades Park, New Jersey; and
• Chicago, Illinois.

The acquisition of SRP on December 30, 2002 included the assumption of a workforce that has approved union certification. A collective bargaining agreement has not yet been negotiated.

We consider our relations with our employees and the unions to be good.

We file (File No. 333-29141) annual, quarterly and special reports and other information with the SEC. You may read and copy any reports, statements and other information filed by us at the SEC's public reference room, at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at public reference rooms in New York, New York and Chicago, Illinois. Please call (800) SEC-0330 for further information on the public reference rooms. Our filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov.

Our principal executive offices and Fence segment headquarters are located in 19,806, and 20,000 square feet, respectively, of leased space in Houston, Texas.

Our operating facilities consist of two categories, manufacturing plants and distribution centers. We own the majority of the manufacturing plants, whereas the majority of distribution centers are leased from third parties. The following table sets forth the general information of each of our facilities by operating segment as of March 28, 2003:

Each of our owned plants and facilities has been mortgaged as security under our credit facility.

We are involved in various claims and lawsuits incidental to our business. We do not believe these claims and lawsuits in the aggregate will have a material adverse affect on our business, financial condition and results of operations.

Not applicable.

Not applicable.

The following table sets forth selected historical financial data derived from our audited consolidated financial statements and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and accompanying notes to the consolidated financial statements, included on pages 17 through 52 of this report.

_________________

1. In fiscal year 1999, all outstanding stock options were redeemed in connection with the 1999 recapitalization of MMHC, resulting in a nonrecurring compensation charge for our employees of $2.4 million.
2. In fiscal year 2000, working capital declined substantially due to the reclassification of a $65.2 million balance under our then $100.0 million revolving credit facility to current debt. The credit facility was to mature on December 12, 2001. The impact of this reclassification continued until the $100.0 million credit facility was replaced on October 30, 2001 by a $75.0 million credit facility that will mature on December 12, 2006.
3. In fiscal years 2002, 2001 and 2000, $5.5 million, $16.1 million and $31.0 million, respectively, were distributed to MMHC to pay down amounts owed under its credit facility. In fiscal year 1998, $1.3 million was distributed to MMHC to fund the negotiated redemption value of one shareholder's equity interest pursuant to MMHC's 1996 recapitalization.
4. EBITDA represents net income before interest expense, income taxes, depreciation and amortization. While EBITDA is not intended to represent cash flow from operations as defined by GAAP and should not be considered as an indicator of operating performance or as an alternative to cash flow (as measured by GAAP) as a measure of liquidity, it is included herein to provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements. See reconciliation of EBITDA to net income on page 24.
5. Includes historical results of operations, from the date of acquisition, of the net assets acquired pursuant to the acquisitions of Page Two, Inc. and Kewe 3, Inc. (2001), Hallett Wire Products Company (2000), National Wholesale Fence Supply, Inc. (1999), Reforce Steel and Wire Corp. (1999), The Burke Group, LLC, Wholesale Fencing Supply, Inc., and Security Fence Supply Co., Inc. (1998).

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements. Our estimation processes generally relate to potential bad debts, damaged and slow moving inventory, value of intangible assets, and health care and workers compensation claims. We base our judgments on historical experience and various other assumptions we believe to be reasonable under the circumstances. These judgments result in the amounts shown as carrying values of assets and liabilities in the financial statements and accompanying notes to the consolidated financial statements. Actual results could differ from our estimates.

We believe the following accounting policies are the most critical in the preparation of our consolidated financial statements.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. These criteria are met generally at the time product is shipped but sometimes when the product reaches its destination. We maintain an allowance for doubtful accounts receivable by providing for specifically identified accounts where collectibility is questionable and a general allowance based on the aging of the receivables, giving consideration to historical experience and current trends. A change in experiences or trends could require a material change in our estimate of the allowance for doubtful accounts.

We reserve for damaged and slow moving inventory based on specific identification. The amount reserved is the recorded cost of the inventory minus its estimated realizable value. We capitalize to inventory, manufacturing and purchase price variances based on inventory turnover rates and expected annual variances, adjusted quarterly for actual variance and turnover rates.

We accrue estimated liabilities for workers compensation and claims incurred but not reported for our self-insured health care program. These accruals are based on current and historical trends. A change in the current or historical trends could require a material change in our estimate for this accrued liability.

We account for business acquisitions using the purchase method of accounting. The cost of the acquired company is allocated to identifiable tangible and intangible assets based on estimated fair values, with the excess allocated to goodwill. Certain assumptions and estimates are employed in determining the fair value of assets acquired (including goodwill and other intangible assets) and of liabilities assumed. We adopted Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets on December 30, 2001, which discontinued the amortization of goodwill and indefinite life intangibles and requires an annual test of impairment based on a comparison of fair values and carrying values. The valuation of impairment under SFAS No. 142 requires the use of forecasts, estimates, and assumptions as to the future performance of the operations. Actual results could differ from forecasts resulting in a revision of our assumptions and, if required, recognizing an impairment loss . Additionally, we completed a transitional goodwill impairment test based on a multiple of EBITDA upon adoption of SFAS No. 142 as of December 30, 2001 and determined the adoption of these rules had no impact on our financial statements. We performed the first required annual impairment test as of December 28, 2002, and the test determined there was no goodwill impairment.

The following is an analysis of our financial condition and results of operations. You should read this analysis in conjunction with our consolidated financial statements and accompanying notes to the consolidated financial statements included on pages 30 through 52 of this report.

1. As a result of the adoption of SFAS No. 142 on December 30, 2001, amortization of goodwill is no longer provided (subject to annual impairment test) and is therefore not included in 2002 expense. Corporate selling, general, administrative and other expenses in 2001 and 2000 include $2,284,000, and $1,883,000, respectively, of goodwill amortization.

The following table presents, as a percentage of sales, certain selected consolidated financial data for the Company for the periods indicated:

Consolidated net sales for fiscal 2002 increased only 0.5% as compared to fiscal 2001, due primarily to a slow down in commercial (non-residential) construction market activity, de-emphasis on some commodity type wire mesh products, and pricing pressures from competitors in both the Fence and Concrete Construction Products segments.

Fence segment 2002 net sales increased during the first three quarters as compared to 2001, by geographic region, and by product line. Favorable weather conditions in the first quarter combined with strong market conditions in the second quarter resulted in a first half of 2002 sales increase of 20%. Competitive pricing pressures impacted market share and lowered revenue on retained business during the fourth quarter. Poorer weather conditions, as compared to the fourth quarter of 2001 (a record setting fourth quarter for the fence segment) contributed to the unfavorable year over year comparison. For the year 2002, Fence segment sales increased over 7%.

Concrete Construction Products net sales decreased almost 8% in fiscal 2002. During 2002, our industry experienced a significant decline in construction activity, specifically in commercial (non-residential) construction activity, and some softening in public works (infrastructure) spending. This decline resulted in an increase in pricing pressures as competitors attempted to maintain sales volumes and market share. Thus, not only lower volumes but lower prices resulted. The Company responded by scaling back the production of certain commodity type wire mesh products and discontinuing the production of galvanized wire during the middle of the year. Late in the fourth quarter, the Baltimore, Maryland, and Oregon, Ohio manufacturing facilities were closed. The combined decrease in sales for these closed locations totaled approximately $8.3 million (approximately 46% of the segment's sales decline) with approximately $2.2 million of the decrease being attributable to the discontin uance of the galvanized wire product line, a non-core activity of the Baltimore, Maryland facility.

Consolidated Gross Profits decreased approximately 12% in fiscal 2002 as compared to 2001. Concrete Construction Products was the primary contributor to the decline in margins.

Fence gross profit margin declined slightly in 2002 primarily due to lower sales prices. Most of the fence product categories experienced a decrease in sales price. Increased volume of manufactured products improved plant efficiency and partially offset the decrease in sales price. Plant expenses also benefited from our initiative to review Merchants Metals' existing manufacturing network and to rationalize and to consolidate our production facilities. The Fence segment shut down or moved several production lines primarily during the fourth quarter of 2002. In 2002, these benefits were offset by an increase in labor costs resulting from the employment of a manufacturing director and several other key manufacturing managers who are responsible for the re-evaluation of the manufacturing process and execution of improvements. The full year impact of the new manufacturing organization is expected to generate net savings beginning in 2003.

Concrete Construction Products gross profit decreased $12.3 million or 25% as compared to the prior year. Significant volume declines in the Baltimore, Maryland facility (including discontinuance of the galvanizing wire product line and wind-down of operations), scaling back of production of certain commodity oriented products, and the impact of the commercial construction market downturn on the concrete accessories product line, resulted in a lower use of capacity. Lower sales volumes meant fixed costs were absorbed by fewer units being produced. This combined with the increased cost of raw materials, a write-down to market of inventory related to the galvanized wire operation, and sales price reductions for some products, reduced margins.

Consolidated selling, general, administrative and other expenses, (not including impairment of fixed assets and restructuring expense) were $49.6 million a 7% increase over the prior year period. As a percent of sales, selling, general, administrative and other expenses, excluding restructuring and impairment charges, were 9.8% and 9.3% in fiscal 2002 and fiscal 2001, respectively. In late fiscal 2001, management began the process of evaluating existing operations and developed a strategic plan designed to improve operating efficiencies and profitability. This initiative included staffing increases designed to improve sales volumes and increase market share. During fiscal 2002, we also incurred certain costs, primarily consulting expenses totaling approximately $1.7 million related to these initiatives. These increases were partially offset by the discontinuance of goodwill amortization expense required by the adoption of SFAS No. 142. The goodwill amortization recorded for the year ended December 29, 2001 was $2.3 million.

Fence sales, marketing, and other expenses increased almost 18% in 2002. At the end of 2001 the Fence segment began hiring additional sales and marketing staff to strengthen the overall sales and marketing organization. The majority of the sales and marketing expense increase is due to labor and employee related costs (benefits, telephone, travel, and supplies). Other administrative costs also increased due to additional staffing to provide expanded financial support and analysis, the implementation of a management trainee program, and the Fence segment's share of the consulting expenses. Other expenses were partially offset by an increase of $1.4 million in prompt payment discounts earned throughout the year.

Concrete Construction Products sales, marketing, and other expense in fiscal 2002 increased approximately $0.8 million as compared to the prior year. Most of the increase related to the segment's share of the consulting expenses.

Fixed asset impairments and restructuring charges recorded by the Company totaled $7.0 million (pre-tax). The charge is the direct result of management's plan to rationalize existing operations, and where applicable, to reduce fixed costs and improve operational efficiencies. The charges include restructuring costs of $3.2 million of which $2.7 million were attributable to the Concrete Construction Products segment with the remaining $0.5 million being attributable to the Fence segment. Fixed asset impairments of $3.8 million ($3.0 million related to the Concrete Construction Products segment and $0.8 million to the Fence segment) resulted from plant closures and realignments, where estimated future cash flows related to certain fixed assets indicated an impairment had occurred. Excluding these restructuring expenses and fixed asset impairments, net income would have been $4.7 million, as compared to the recorded loss.

Interest expense totaled $25.6 million in 2002 which represents an increase of 1.7% as compared to 2001. The 2002 increase is primarily due to the full year impact of the issuance of $50.0 million in senior subordinated notes issued in June 2001 which were used to pay down the revolving credit facility and our decision to lower accounts payable balances to take advantage of attractive prompt payment discounts. Declining interest rates during the year partially offset the increases.

Income tax expense. During 2002, the effective income tax rate decreased due to the decline in earnings, and the impact of the elimination of non-deductible goodwill amortization due to the adoption of SFAS 142.

Consolidated sales for fiscal 2001 decreased as compared to 2000. Most of this decrease was attributable to the Concrete Construction Products segment where net sales decreased 8.7% because of a decline in market activity and related pricing pressures.

Fence net sales decreased 2.3% in 2001. Net sales in 2001 fluctuated throughout the year, primarily in connection with unfavorable and favorable weather conditions. During the first half of 2001 (primarily first quarter and April), colder weather in the Northeast and Midwest and rainy weather in the East and Southwest contributed to an overall decrease in sales of 11.8% as of second quarter 2001. Fourth quarter 2001 net sales increased 17.6% over fourth quarter 2000. This increase was primarily due to warmer weather nationwide and an increase in security fencing product orders, possibly as the result of the events of September 11, 2001.

Concrete Construction Products net sales in 2001 decreased due to unfavorable weather conditions in the first half of the year and the onset of a slowdown in nonresidential construction activity. Also contributing to the decrease in net sales were lower volumes and prices as competitors of certain products lowered prices, and management's decision to only selectively meet these pricing actions.

Consolidated gross profit decreased 11.5% in 2001 most of which was attributable to the Concrete Construction Products segment.

Fence gross profit margin increased as compared to the prior year. This increase in margin was primarily due to nonrecurring expenses incurred in fiscal year 2000 related to the expansion/modernizing of a fence plant in the West region. Additionally, 2001 benefited from lower raw material costs for zinc and tubing, and changes in product mix to higher margin products. These increases to gross margin were partially offset by unfavorable manufacturing costs. Lower sales activity during the first half of 2001, combined with an inventory reduction program, led to a lower absorption of manufacturing plant costs into inventory. Cost inflation in labor rates and worker related benefit costs also contributed to the unfavorable impact on gross margin. During late fourth quarter 2000 and most of 2001, sales volume decreases triggered a reduction in manufacturing headcount and thus reduced expenses. These cost saving initiatives impacted the 2001 gross profit margin through the third qu arter. Improved fourth quarter 2001 sales volume initiated the replacement of some employees, and increased other material handling expenses.

Concrete Construction Products gross profit margin decreased from 23.9% in 2000 to 21.0% in 2001. This profit margin decline was primarily the result of unfavorable manufacturing cost absorption due to the impact of lower sales volume on plant efficiency, combined with increased labor rates and worker related benefit costs. An inventory reduction program in this segment also resulted in lowered production volumes and plant efficiencies. The remaining decline in margin was due principally to lower sales prices, although higher raw material costs also impacted gross margin levels. Partially offsetting these declines were increases in sales of higher margin products in the concrete accessories product line.

Consolidated selling, general, administrative and other expense increased slightly in 2001 when compared to fiscal 2000. The increase in expense in 2001 was primarily due to higher compensation and other expenses relating to the staffing of both a Chairman of the Board and Chief Executive Officer, whereas one person performed both roles in 2000. In addition, incentive compensation for the Fence segment increased in 2001. These increases were partially offset by lower bad debt experience in the Fence Segment than in the prior year (2000 bad debt expense resulted from several customers that had experienced financial difficulties and/or bankruptcy), and reduced travel and advertising expenses. The Concrete Construction Products segment experienced a marginal increase in bad debt expense which was offset by lower incentive compensation and a sales force reduction in the mesh product line.

Interest expense increased in 2001, due primarily to the issuance of $50.0 million in 13% senior subordinated notes ("13% Notes") in June 2001 to increase liquidity by paying down the revolving credit facility balance. The lower revolving credit facility balances and reduced interest rates partially offset the increase in subordinated notes interest.

Income tax expense. The effective income tax rate increased in 2001 as earnings declined and fixed non-deductible goodwill amortization expense was a more significant element of earnings before income tax.

Working capital increases during the winter and spring seasons as inventory is built for the busier spring and summer sales seasons and for the resultant increase in accounts receivable. The Company's revolving credit facility is positioned to cover these requirements.

In 2002, working capital increased approximately $5.6 million. This increase is primarily attributable to the decreased liabilities, specifically accounts payable, resulting from our 2002 decision to take advantage of a variety of attractive prompt payment discounts.

Working capital in 2000 declined significantly due to the reclassification of our revolving credit facility to short-term debt as its maturity date was in December 2001. In October 2001, the facility was amended and restated, with the maturity date being extended to December 2006. In 2001, working capital increased $60.7 million as compared to 2000, and was more comparable to historical levels as borrowings under the revolving credit facility were reclassified back to long-term in 2001.

Cash Flows from operations contributed $10.1 million of cash in 2002 which was down from $29.6 million in the prior year. Of the $19.5 million change, the largest component relates to the decision to take advantage of attractive prompt payment discounts. Accounts payable at December 28, 2002 were $10.0 million less than at December 29, 2001. As required, payments on accounts payable can be extended to satisfy any unusual liquidity requirements. The reduction in fiscal 2002 profitability was another major reason for the change in cash flows from operations. An offsetting positive from a cash flows standpoint was a decrease in accounts receivable as of December 28, 2002. Days sales outstanding ("DSO") was generally consistent with the prior year. DSO is at a level we believe is reasonable for the industries in which our segments operate. More cash was generated from inventory reduction in 2001 than 2002 due primarily to an unusually large build-up at December 30, 2000, which prompted an in ventory reduction program in early 2001.

Investing activities. Capital expenditures utilized $5.5 million of cash in 2002, which was generally comparable to prior years. Additionally, we paid deposits of $5.7 million relating to machinery that will be delivered in 2003. This equipment will increase the structural mesh capacity of the Ivy Steel & Wire division while reducing related operating costs. We expect capital lease financing will be obtained in 2003 for these machines and, as a result, the availability under our revolving credit facility will be minimally affected. Thus, the deposits are expected to be recovered in 2003. Future payments for that equipment will be reported as a financing activity on the Consolidated Statement of Cash Flows. The Company plans to purchase approximately $10 million of property, plant, and equipment in fiscal 2003. Delays or cancellation of planned projects or changes in the economic outlook and the Company's liquidity could increase or decrease capital spending from the amounts now anticipated. Annual capital expenditures are currently limited to $20.0 million by our revolving credit facility. The Company had no business acquisitions in 2002. Business acquisitions accounted for $2.1 million, and $42.6 million of cash utilized in investing activities in fiscal 2001 and 2000, respectively. During the first fiscal quarter of 2003, the Company purchased Structural Reinforcement Products, Inc. for approximately $14.3 million in cash, and approximately $9.4 million of assumed debt which was subsequently paid down and was funded by our revolving credit facility.

Financing activities provided cash of $1.6 million in fiscal 2002 as compared to cash utilized of $23.5 million in 2001 and $21.3 million provided in 2000. Major financing uses included a $2.5 million prepayment of interest to facilitate the exchange of $38.7 million in 13% Notes to 11.25% Notes during the first quarter of fiscal 2002, and dividend payments to MMHC. Dividend payments to MMHC of $5.5 million, $16.1 million, and $31.0 million in 2002, 2001, and 2000, respectively, were used for the payment of interest and principal balance reduction of MMHC's subordinated credit facility. Our revolving credit facility and senior subordinated note indenture require us to meet certain tests before dividends can be distributed to MMHC. Dividend payments for 2001 and 2000 included payment of cumulative qualified dividends from previous years during which little or no dividends were paid.

The Company expects increased payments on capital lease obligations in 2003. Such lease financings are expected to be increased to the maximum amount allowed by our revolving credit facility (currently limited to $10.0 million) to fund the acquisition of certain production related equipment.

In 2001, proceeds of $48.5 million from the issuance of the 13% Notes were used for repayment of revolving credit facility obligations. In 2001, the credit line of the revolving credit facility was decreased from $100.0 million to $75.0 million, a level we determined to sufficiently meet our liquidity needs at that time. With the acquisition of Structural Reinforcement Products, Inc., and because our potential borrowing base is expected to exceed $75 million during the course of the fiscal year, the Company anticipates increasing its revolving credit facility to at least the former $100 million level. There can be no assurance, however, that the credit facility will be increased.

EBITDA is a widely accepted financial indicator of a company's ability to service and incur debt. EBITDA should not be considered in isolation from or as a substitute for net income or cash flow measures prepared in accordance with accounting principles generally accepted in the United States or as a measure of a company's profitability or liquidity. EBITDA is defined as the sum of income before interest expense, income taxes, depreciation and amortization and is calculated below for fiscal years 2002, 2001, and 2000.

The decrease in EBITDA for fiscal years 2002 and 2001 is attributable to the changes in net sales, gross profit and selling, general, administrative and other expenses described above. EBITDA was also impacted in 2002 by restructuring expenses and fixed asset impairments of $3.2 million and 3.8 million, respectively.

Senior Subordinated Notes. On July 6, 2001, we issued $50.0 million of 13% Notes in a private offering. On March 6, 2002, we exchanged $38.7 million in principal amount of the 13% Notes, on a par-for-par basis, for newly issued 11.25% Notes plus an aggregate cash payment of approximately $3 million funded by the revolving credit facility. The aggregate cash payment was calculated by adding (i) the present value, as of the date of exchange, of the difference between the remaining interest payments on the 13% Notes versus the 11.25% Notes, and (ii) the difference between the accrued and unpaid interest on the 13% Notes and the 11.25% Notes between the last interest payment date and the date of exchange.

Our senior subordinated notes are subject to "Change in Control" provisions. These provisions state that a change in control exists, subject to exceptions, if any of the following occurs; a sale of substantially all of our assets, the liquidation or dissolution of our company, a change in the beneficial ownership of more that 50% of the total voting power of the voting stock, or the majority of the members of the board of directors of our company do not continue as directors. If a change in control exists, each holder will have the right to require us to repurchase all or any part of their notes at a repurchase price in cash at 101% of the aggregate principal plus accrued and unpaid interest and liquidating damages, if any.

Credit Facility. Our revolving credit facility provides for maximum borrowings of $75.0 million. We believe the acquisition of Structural Reinforcement Products, Inc. and continued business development strategies will require this credit facility to be increased to at least the former $100 million credit line level. Discussions are proceeding with senior lenders and we expect to increase this facility during the second quarter of fiscal 2003. There can be no assurance, however, that the credit facility will be increased. Borrowings under our credit facility bear interest, at our option at either (i) the base rate (as announced from time to time by Fleet National Bank) plus 0.25% or (ii) the Eurodollar Base Rate for the applicable Eurodollar Interest Period plus an adjustable margin, which ranges from 1.25% to 2.75%, based on the ratio of total funded indebtedness to previous 12 months adjusted earnings from operations. In October 2002, this adjustable margin became 2.75% due to the fixed asset i mpairments and restructuring charges combined with declines in operating earnings. Borrowings bearing interest at Eurodollar rates plus 2.75% are denominated in short-term obligations of LIBOR with one to six month maturities. On December 28, 2002, the portion of the outstanding borrowings under LIBOR was approximately $10 million and matures on January 21, 2003. We are required to pay a commitment fee of 1/2 of 1.0%, per annum, of the unused portion of the credit facility, which is an amount equal to the $75.0 million maximum borrowable amount less the amount actually borrowed, and various other fees. The revolving credit facility is secured by all of our assets and stock, and guaranteed by MMHC. The terms of the revolving credit facility contain, among other provisions, covenants that require us to maintain a fixed charge ratio at no less than a designated amount, limit the amount of additional indebtedness, and limit the creation or existence of liens. The covenants also include certain restrictions on acquisitions, mergers and sales of assets. Our distribution of dividends to MMHC is only permitted under the revolving credit facility if certain tests as set forth in the loan agreement are met.

The following summarizes our contractual obligations at December 28, 2002 and the effect these obligations are expected to have on our liquidity and cash flow in future periods:

We expect cash flows from operations and the borrowing availability under our revolving credit facility will provide sufficient liquidity to meet our normal operating requirements, capital expenditure plans and allowable dividends to MMHC.

We have pursued and intend to continue to pursue a strategy of business acquisitions that will broaden our distribution network, complement or extend our existing product lines or otherwise increase our market share. It is possible, depending on our future operating cash flows and the size of potential acquisitions, we will seek additional sources of financing, subject to limitations set forth in our senior subordinated note indenture and revolving credit facility. Significant acquisition opportunities will require additional equity financing or capital infusions. We will also pay dividends to MMHC from time to time to pay operating expense, interest and principal on MMHC's indebtedness, and dividends on MMHC's preferred stock and for other purposes. Such payments of dividends are limited by state of Delaware corporate law and financial tests included in both our senior subordinated note indenture and revolving credit facility loan agreement.

Seasonality. Our products are used in the nonresidential, infrastructure, and residential construction industries. These industries are both cyclical and seasonal, and changes in demand for construction services have a material impact on our sales and profitability. The highest level of sales and profitability occur during the times of the year when climatic conditions are most conducive to construction activity. Accordingly, sales will typically be higher in the second and third quarters and will be lower in the first and fourth quarters.

The impact of inflation on our operations has not been significant in recent years. We cannot assure, however, that a high rate of inflation in the future will not have an adverse effect on our operating results.

The statements contained in this report which are not historical facts, including, but not limited to, statements found under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" above, are forward looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward looking statements in this report could differ materially from those contemplated by such forward looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in the report, including without limitations, the portions of such statements under the caption referenced above, and the uncertainties set forth from time to time in our other public reports and filings and public statements.

We are subject to market risk exposure related to changes in interest rates on our $75.0 million revolving credit facility and our senior subordinated notes. Borrowings under our $75.0 million credit facility bear interest, at our option, at either the bank's base rate plus 0.25 percent or Eurodollar rate plus an adjustable margin, which ranges from 1.25% to 2.75% based on our previous 12 month adjusted earnings from operations. In October 2002, this adjustable margin became 2.75% due to the decline in operating earnings combined with the incurrence of fixed asset impairments and restructuring charges. See Note 6 to the consolidated financial statements included in Item 8. For fiscal year 2002 and 2001, the average daily balance outstanding under our credit facilities were $24.8 million and $40.7 million, respectively. In 2003, absent any additional business acquisitions, we expect the average balance of this facility to be approximately $47.0 million to $52.0 million. Based on this balance, a on e percent change in the interest rate would cause a change in interest expense of approximately $0.5 million. A one percent change in the interest rate in fiscal year 2002 would have caused a change in interest expense of approximately $0.2 million.

Our $200.0 million of fixed interest rate senior subordinated notes payable are exposed to changes in fair value. The estimated fair value of the notes was $184.5 million and $186.5 million, respectively, at December 28, 2002 and December 29, 2001, respectively. The estimated fair values are based on quoted market prices. The variation in fair value is a function of market interest rate changes and the investor perception of the investment. The fair market value of our senior subordinated debt at March 20, 2003 declined to $140.5 million.

We have exposure to price fluctuations associated with steel rod, our primary raw material. We negotiate purchase commitments from one to nine months in advance to limit our exposure to price fluctuations and ensure availability of the materials. Purchases from foreign sources are denominated in U.S. dollars. Our ability to continue to acquire steel rod from overseas sources on favorable terms may be adversely affected by fluctuations in foreign currency exchange rates, foreign taxes, duties, tariffs, trade embargoes and other import limitations, resulting in an increase in our cost of sales. Most steel rod imports were subject to a three-year, tariff-rate quota that commenced in March 2000 and expired on February 28, 2003. In addition, anti-dumping and countervailing-duty cases relating to steel rod imports from selected foreign countries have been assessed by governmental agencies. Several countries are subject to a high tariff which will prohibit them from shipping steel rod into the United States . Because steel rod comprises a substantial portion of our cost of goods sold (approximately 22% in fiscal 2002), any increase in steel rod cost which cannot be passed on to our customers would reduce our gross profit and cash flows from operations. Steel rod costs in 2003 are expected to be higher than the costs incurred in 2002. Although we have historically been able to pass along most increases in steel rod prices to our customers, competitive pressures may prevent us from doing so in the future. A significant decrease in our volume of raw material purchases could also result in us being unable to secure volume purchase discounts we have received in the past. This could reduce cash flows from operations and impact future levels of profitability.

To the Board of Directors and Stockholder
MMI Products, Inc.

We have audited the accompanying consolidated balance sheets of MMI Products, Inc. as of December 28, 2002 and December 29, 2001 and the related consolidated statements of operations, stockholder's equity (deficit) and cash flows for each of the three fiscal years in the period ended December 28, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of MMI Products, Inc. at December 28, 2002 and December 29, 2001 and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective December 30, 2001 the Company changed its method of accounting for goodwill.

Houston, Texas
February 21, 2003

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

The consolidated financial statements include the accounts of MMI Products, Inc. and its wholly owned subsidiary, MMI Management, Inc., and their partnership interests in MMI Management Services L.P. (collectively, "the Company"). All significant intercompany balances and transactions have been eliminated. MMI Products, Inc. is a wholly owned subsidiary of Merchants Metals Holding Company ("MMHC"). The Company is a manufacturer and distributor of products used in the nonresidential, infrastructure and residential construction industries within the United States. The manufactured products in each of the Company's product lines are produced primarily from the same raw material, steel rod. The Company's customers include contractors, fence wholesalers, industrial manufacturers, highway construction contractors and fabricators of reinforcing bar.

The Company follows a 52-53 week fiscal year ending on the Saturday closest to December 31. The 2002, 2001 and 2000 fiscal years refer to the fifty-two week periods ended December 28, 2002, December 29, 2001 and December 30, 2000, respectively.

Certain reclassifications have been made to the 2001 financial statements in order to conform to the 2002 presentation.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. These criteria are met generally at the time product is shipped but sometimes when the product reaches its destination. Costs associated with shipping and handling of products is included in cost of sales.

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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

All demand deposits and time deposits with original maturities of three months or less when purchased are considered to be cash equivalents.

Inventories are valued at the lower of average cost or market for most products other than welded wire mesh. The welded wire mesh division of the Concrete Construction Products segment values its inventory at the lower of first in, first out ("FIFO") cost or market.

Certain quantities of raw material are acquired on the Company's behalf by a broker. These inventories are stored under a consignment arrangement. Once certain acceptance provisions are met, title passes to the Company and inventory cost is recorded.

Property, plant and equipment are stated at historical cost, except for assets acquired in business combinations which are recorded at fair value at the date of acquisition. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets. Estimated useful lives are as follows:

Depreciation expense was $11,138,000, $11,122,000 and $10,613,000 for fiscal years 2002, 2001 and 2000, respectively.

Major capital upgrades are capitalized. Maintenance, repairs and minor upgrades are expensed as incurred. Gains and losses from dispositions are included in the results of operations.

Certain machinery and equipment is leased under capital leases. Assets recorded under capital leases are amortized over the period of the respective leases with the related amortization included in depreciation expense.

The carrying values of long-lived assets are reviewed for potential impairment when events or changes in circumstances indicate the carrying amount of such assets may not be recoverable, as determined based on the estimated future undiscounted cash flows.

If such assets are considered to be impaired, the carrying value of the related assets would be reduced to their estimated fair value.

The Company reviews the carrying values of goodwill and identifiable intangibles whenever events or changes in circumstances indicate that such carrying values may not be recoverable and at least annually for goodwill as required by the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). The valuation of impairment under SFAS 142 requires the use of forecasts, estimates, and assumptions as to the future performance of the operations. Actual results could differ from forecasts, resulting in a revision of the assumptions and, if required, recognition of an impairment loss.

In determining the fair value of each reporting unit (as defined by SFAS 142), the Company estimates fair value by applying a range of multiples of earnings before interest, taxes, depreciation and amortization ("EBITDA"). In the event the carrying value exceeds the estimated fair value, the Company performs the required test to determine any potential goodwill impairment. If such impairments exist, the excess book value is written off as an impairment expense.

A current income tax expense or benefit is recognized for estimated income taxes to be paid or refunded relating to the Company's taxable income or loss. The liability method is used to record deferred income taxes. Under this method, differences between the financial reporting and tax bases of assets and liabilities are identified. Deferred income taxes relating to those differences are measured using the tax rates and laws currently in effect. A valuation reserve is recorded to reduce deferred tax assets if realization is questionable.

Financial instruments that could potentially subject the Company to concentrations of credit risk are accounts receivable. The creditworthiness of customers is continuously evaluated and generally does not require collateral. No customer accounted for 10% or more of consolidated net sales for fiscal years 2002, 2001, and 2000.

The Company maintains an allowance for doubtful accounts receivable by providing for specifically identified accounts where collectibility is questionable and a general allowance based on the aging of the receivables, giving consideration to historical experience and current trends. A change in experiences or trends could require a material change in our estimate of the allowance for doubtful accounts.

The recorded value of monetary assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, and accounts payable, are considered to approximate their respective fair values at December 28, 2002 and December 29, 2001. The carrying values of senior subordinated debt are $200 million versus estimated fair values of $184.5 million and $186.5 million, at December 28, 2002 and December 29, 2001, respectively. The estimated fair values are based on the quoted market prices. The fair value of the revolving credit facility approximates its carrying value.

In July 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that an accrual for a cost associated with an exit or disposal activity be recognized when a liability is incurred. Under Issue EITF 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. MMI expects to adopt SFAS 146, effective December 29, 2002, the beginning of its fiscal year 2003.

Effective December 30, 2001, the Company adopted SFAS No. 142, which prohibits the amortization of goodwill and intangible assets with indefinite useful lives, and requires that these assets be reviewed for impairment at least annually. Prior to the adoption of SFAS No. 142, the Company historically evaluated goodwill for impairment, when certain indicators are present, by comparing its total unamortized balance of goodwill to total projected undiscounted cash flows.

SFAS No. 142 requires that goodwill be tested for impairment at a reporting unit level upon adoption and at least annually thereafter. The Company determines the fair value of each reporting unit by using a multiple of EBITDA and comparing it to each reporting unit's carrying value. During the second quarter of fiscal 2002, the Company completed the transition impairment test as of December 30, 2001 and determined the adoption of this provision of the new rule had no impact on the Company's financial statements. The Company performed the first of the required annual tests of impairment as of December 28, 2002 and no impairment of goodwill was indicated.

The following information provides net income for the fiscal years ended December 29, 2001 and December 30, 2000, adjusted to exclude amortization expense relating to goodwill recognized in those periods.

Availability of cash at MMHC for payments related to its Credit Facility and its cumulative preferred dividend obligation is principally dependent upon the Company's cash flows. State of Delaware corporate law, the Revolving Credit Facility agreement and senior subordinated notes indenture require the Company to meet certain tests before any dividends can be distributed to MMHC. The Company paid dividends of $5.5 million, $16.1 million and $31.0 million to MMHC in 2002, 2001 and 2000, respectively, for payments applied to the MMHC Credit Facility.

Inventories consist of the following:

Property, plant, and equipment consist of the following:

Machinery and equipment under capital lease obligations included in property, plant, and equipment amount to $3,394,000 and $4,278,000, net of accumulated amortization of $6,880,000 and $5,769,000, at December 28, 2002 and December 29, 2001, respectively.

Deferred charges and other assets consist of the following:

Intangible assets are amortized on a straight-line basis over their respective estimated lives which are between 3 and 20 years. Estimated aggregate amortization expense related to intangible assets, other than goodwill, for the next five years is $873,000. Total amortization expense for fiscal years 2002, 2001 and 2000 was $462,000, $2,719,000, and $2,563,000, respectively.

Accrued liabilities consist of the following:

Long-term debt, including capital lease obligations, consisted of the following:

Scheduled maturities of long-term debt, including capital lease obligations, are as follows:

The senior credit facility provides for revolving credit not to exceed $75.0 million and matures on December 12, 2006. Borrowings under the credit facility are limited by a borrowing base computation. The maximum allowable borrowing is equal to the sum of 50% of eligible finished goods inventory plus 65% of eligible raw materials inventory plus 85% of eligible receivables. The amount borrowable against finished goods inventory and raw materials inventory is further limited to $45.0 million.

Borrowings under the credit facility bear interest, at the Company's option, at either (i) the base rate (as announced from time to time by Fleet National Bank) plus 0.25% or (ii) the Eurodollar Base Rate for the applicable Eurodollar Interest Period plus an adjustable margin, which ranges from 1.25% to 2.75% based on a ratio of total funded indebtedness to "Adjusted Earnings from Operations" (a defined term substantially the same as EBITDA). Borrowings bearing interest at Eurodollar rates have historically been denominated in short-term obligations of LIBOR with one to six month maturities. On December 28, 2002, $10 million of the outstanding borrowings bore LIBOR based interest and mature on January 21, 2003. As of December 28, 2002, the average interest rate for this facility was 4.13%.

The credit facility contains customary representations, warranties and events of default and requires compliance with certain covenants, including, among other things, a minimum relationship between operating cash flows and fixed charges such as interest (the "Fixed Charge Coverage Ratio"), limitations on incurrence of indebtedness, imposition of liens on assets, capital expenditures, mergers and consolidations, disposition of assets, payment of dividends and other distributions, repayment or repurchase of subordinated indebtedness prior to maturity. The annual capital expenditure limitation is $20.0 million. At December 28, 2002, the Company was in compliance with all covenants.

The revolving credit facility is secured by all assets and stock and is guaranteed by MMHC. Borrowing availability under the revolving credit facility at December 28, 2002, after taking into account borrowing base restrictions and outstanding borrowings and letters of credit, was approximately $45.9 million. Outstanding letters of credit (which cannot exceed $20.0 million) totaled $4.9 million and $2.9 million at December 28, 2002 and December 29, 2001, respectively.

On April 16, 1997, the Company issued $120.0 million of 11.25% Notes due 2007. The net proceeds of $116.0 million, after fees and expenses, were used to (i) distribute $57.1 million to MMHC for the redemption by MMHC of certain of its equity interests, (ii) repay the entire $10.0 million principal amount, plus accrued interest, on a senior subordinated secured note payable, (iii) repay the Company's remaining indebtedness under a term loan facility of $11.4 million and (iv) reduce the Company's indebtedness under a revolving credit facility. The senior subordinated notes are general unsecured obligations of the Company and are subordinated to the Company's revolving credit facility.

On February 12, 1999, the Company issued $30.0 million of 11.25% Notes due 2007. The net proceeds of approximately $31 million, which include the original issuance premium, after fees and expenses, were used to reduce the borrowings under the revolving credit facility. The effective interest rate of these notes is 10.5% per annum.

• 13% Notes

On July 6, 2001, the Company issued $50.0 million of 13% Notes in a private offering. The net proceeds of approximately $49 million, after fees and expenses, were used to reduce borrowings under the revolving credit facility.

• Exchange of 13% Notes for 11.25% Notes

On March 6, 2002, the Company exchanged $38.7 million in principal amount of the 13% Notes, on a par-for-par basis, for newly issued 11.25% Notes plus an aggregate cash payment of approximately $3 million funded by the revolving credit facility. The aggregate cash payment was calculated by adding (i) the present value, as of the date of exchange, of the difference between the remaining interest payments on the 13% Notes versus the 11.25% Notes, and (ii) the difference between the accrued and unpaid interest on the 13% Notes and the 11.25% Notes between the last interest payment date and the date of exchange.

• Redemption Options

The 11.25% and 13% Notes may be redeemed at the option of the Company, in whole or in part, at any time at the prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and liquidated damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on April 15 of the years indicated:

• Change in Control Provision

The 11.25% and 13% Notes are subject to a "Change in Control" provision. This provision states that a change in control exists if either of the following occurs; a sale of substantially all assets, the liquidation or dissolution of the Company, a change in the beneficial ownership of more than 50% of the total voting power of the voting stock, or the majority of the members of the Board of Directors do not continue as directors. If a change in control exists, each holder will have the right to require the Company to repurchase all or any part of their notes at a repurchase price in cash at 101% of the aggregate principal plus accrued and unpaid interest and liquidating damages, if any.

Beginning in early fiscal 2002, management began the process of evaluating the Company's existing network of manufacturing plants and distribution locations, and re-engineering business processes within facilities. The initiative's primary focus is the more effective utilization of assets and reduction of excess capacity through consolidation and rationalization.

In connection with this initiative, management approved a restructuring plan that commenced during the fourth quarter of 2002. Management's plan included the closure of three manufacturing facilities (Baltimore, Maryland, Oregon, Ohio and Bartonville, Illinois), the shutdown of a production line at two different plants, and the closure of two distribution facilities. In connection with these activities, the Company recorded $0.8 million for severance payments associated with the termination of 149 employees, and $2.4 million related to other employee benefit costs and certain facility related costs, including remaining non-cancelable lease obligations.

A reconciliation of the restructuring charge activity associated with these restructuring costs as of December 28, 2002 is as follows (in thousands):

In conjunction with the facility closures, the Company recorded an impairment charge of $3.8 million for certain assets which have no future benefit to the Company. Additionally, certain assets have been reclassified as "held-for-sale". Assets held for sale at December 28, 2002 are comprised of land and buildings (Baltimore, Maryland and Oregon, Ohio), and certain production equipment. These assets, totaling approximately $5.1 million, are included in other assets. These assets are recorded at amounts not in excess of what management currently expects to receive upon sale, less cost of disposal; however, the amounts the Company will ultimately realize are dependent on numerous factors, some of which are beyond management's ability to control, and could differ materially from the amounts currently recorded.

The Company leases warehouse and office space and certain machinery and equipment under operating leases. Future minimum lease payments on non-cancelable operating leases with remaining terms of one or more years consisted of the following at December 28, 2002 (in thousands):

Total rental expense for fiscal years 2002, 2001 and 2000 was $8,640,000, $8,316,000 and $7,876,000, respectively.

The Company is involved in a number of legal actions arising in the ordinary course of business. The various asserted claims and litigation in which it is involved are judged to not materially affect financial position or future operating results, although no assurance can be given with respect to the ultimate outcome of any such claim or litigation.

401(k) Plan. Through January 31, 2002, the Company maintained two defined contribution plans - the MMI Products, Inc. 401(k) Savings Plan (the "401(k) Plan") and the MMI Products, Inc. Pension Plan (the "Pension Plan"). Effective February 1, 2002, the two plans have been merged. The MMI Products, Inc. Retirement and 401(k) Savings Plan (the "Merged Plan") incorporates a 401(k) feature for all employees who contribute a portion of their compensation to the Merged Plan. The Company will match employee contributions of up to 2% of their individual compensation at a rate of 50%. The Company will also contribute a discretionary amount to the Merged Plan for the benefit of all eligible employees, whether they participate in the 401(k) feature or not. Employees covered by a collective bargaining agreement have not been eligible for the previous plans nor are eligible under the Merged Plan.

Under the Merged Plan, vesting in the Company's matching 401(k) contribution is immediate. Vesting in the discretionary retirement contribution will be over a three year period.

The Company's contributions to the 401(k) Plan and the Pension Plan for fiscal years 2002, 2001 and 2000 were $2,047,000, $2,042,000, and $1,566,000, respectively.

The Company maintains a retirement plan which covers former employees of the now closed Baltimore, Maryland manufacturing plant. The plan was established under a collective bargaining agreement with the union representing the employees. Plan benefits are based primarily on years of service. It is the policy of the Company to fund this plan currently based upon actuarial determinations and applicable tax regulations.

The plan's accumulated benefit obligation was $3,378,000 and $2,829,000 for fiscal years 2002 and 2001, respectively.

The amounts included within other comprehensive income arising from changes in the additional minimum pension liability for fiscal years 2002 and 2001, net of tax, was $476,000 and $236,000, respectively.

Historically, prior-service costs were amortized on a straight-line basis over the average remaining working lifetime of participants. Due the plan curtailment that occurred in 2002, approximately $147,000 of these unrecognized costs were recognized and are included in other expense.

Gains and losses in excess of 10% of the greater of benefit obligation and the market-related value of assets are amortized over the average remaining working lifetime of participants expected to receive benefits.

The Company also contributes to certain multi-employer, defined benefit plans covering certain employees under other collective bargaining agreements. Total expenses for these plans were $594,000, $441,000, and $447,000 for fiscal years 2002, 2001 and 2000 respectively.

Significant components of the provision for income taxes, which are not allocated to the business segments, are as follows:

The reconciliation of income tax computed at the U.S. federal statutory tax rate to income tax expense is as follows for fiscal years 2002, 2001, and 2000:

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:

For the fiscal years 2002 and 2001, the Company has recorded a deferred tax benefit of $304,000 and $151,000, respectively, from the changes in the additional minimum pension liability that is recorded as part of accumulated other comprehensive income.

Four operating units are aggregated into two reportable segments: Fence and Concrete Construction Products. The Fence segment has two operating units that offer similar products and services. The Concrete Construction Products segment has two operating units that offer complimentary products and services within the concrete construction industry.

The Fence segment manufactures chain link fence fabric, a full line of aluminum die cast and galvanized pressed steel fittings, ornamental iron products, PVC color coated wire and vinyl coated color pipe, tubing and fittings. In addition, the segment also distributes many different fence products including pipe, tubing, wood, vinyl, aluminum, and ornamental iron fence products, gates, hardware, and other related products. The fence products are used in numerous residential and nonresidential applications.

The Concrete Construction Products segment manufactures wire mesh and a variety of concrete accessories. Concrete accessories include supports for steel reinforcing bars and wire mesh, form ties, welded dowel assemblies, anchors and inserts. The concrete construction products are used in the construction of roads, bridges and other heavy construction projects including nonresidential buildings.

The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its business units based upon their return on invested capital elements and other performance measurements.

Summarized financial information concerning the reportable segments is presented in the following tables. The Corporate column for earnings before interest and income taxes represents only amortization of intangibles and nonrecurring items. Corporate general and administrative expenses are allocated to the segments based upon proportional net sales.

On December 30, 2002, the Company purchased all of the issued and outstanding shares of Structural Reinforcement Products, Inc., ("SRP") a Delaware corporation for approximately $14.3 million in cash plus annual payments over a five year period totaling $4.3 million, including $0.7 million of imputed interest. Additionally, $9.4 million of bank related debt and interest was repaid. Acquired income tax benefits of approximately $3.2 million substantially offset the $3.6 million present value of annual installment payments. Additional acquisition costs would be paid contingent upon and economically justified by the operating and financial success of the acquired facility in fiscal years 2003 through 2010. The acquisition of SRP provides the Company with significant improvements in the quality of production facilities which is consistent with management's overall plan to improve operating efficiencies and reduce costs. The acquisition has been accounted for using the purchase method of account ing.

The aggregate purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on the Company's initial estimate of their fair values. The excess of the purchase price over the fair value of the net identifiable assets has been allocated to goodwill. SRP is a manufacturer of welded wire mesh in a "state-of-the-art" plant facility located in Hazleton, Pennsylvania. The results of operations of the acquired business will be included in the Company's consolidated financial statements from the date of acquisition, December 30, 2002. None of the goodwill is expected to be tax deductible.

The following represents the payment/liability components of the total purchase price of the net assets acquired:

The following represents the Company's initial allocation of the purchase prices:

None.

The following table sets forth relevant information regarding our directors and executive officers, including their respective ages.

Julius S. Burns has been Chairman of our board since January 2, 2001. Until December 1, 2001, he served as our President and Chief Executive Officer for 12 years. Prior to that he served for 13 years as President and General Manager of Ivy Steel & Wire Company, Inc. Mr. Burns has 36 years of related industry experience.

Thomas F. McWilliams has been a director since 1992. Mr. McWilliams is a Managing Director of Citicorp Venture Capital, Ltd. ("CVC"), a small business investment company and a managing partner of CVC Equity Partners. He has been affiliated with CVC since 1983. Mr. McWilliams is a member of CVC's investment committee. Mr. McWilliams is a director of Ergo Science Corporation, Polar Corporation, Royster Clark Group, Inc. and Strategic Industries, Inc.

Carl L. Blonkvist has been a director since April 1997. Mr. Blonkvist recently resigned from Page-Wheatcroft & Co. as Senior Vice President and Chief Operating Officer. Mr. Blonkvist was Senior Vice President of Coca-Cola Foods from January 1994 to April 1996, and was a Senior Partner of Computer Science Corporation, a consulting firm, from 1991 to 1994. In 1984, Mr. Blonkvist formed Paragon Consulting Group, a consulting firm specializing in operations strategy, which was purchased by Computer Science Corporation in 1991. Mr. Blonkvist spent twenty years with Booz, Allen, and Hamilton as Senior Vice President and National Leader of their Operations practice.

John M. Piecuch has been our President and Chief Executive Officer and a director since December 17, 2001. Mr. Piecuch was the President and Chief Executive Officer of Lafarge Corporation, one of the largest construction material companies in North America. Mr. Piecuch is a director of Brampton Brick Limited, a Canadian producer of construction and industrial products.

Robert N. Tenczar has been our Vice President, Chief Financial Officer and Secretary since May 1993. From 1985 to 1993, Mr. Tenczar was employed by Baker Hughes Incorporated, Houston, Texas, his last assignment as Vice President - Finance of its EnviroTech Controls division.

James M. McCall has been employed by us and our predecessors in various management positions of increasing responsibility since 1975, as General Manager of Wire Mesh operations since 1989 and the President of the Ivy Steel and Wire division since 1999. Mr. McCall has 37 years of related industry experience.

Davy J. Wilkes has been employed by us and our predecessors since 1974, as General Manager of Concrete Accessories operations since November 1992 and the President of the Meadow Burke Products division since 1999. Mr. Wilkes has 41 years of related industry experience.

Each director holds office until our next annual meeting of stockholders or until their successor is duly elected and qualified. All officers are elected annually and serve at the direction of our board of directors. Our directors are reimbursed for all expenses actually incurred for each board meeting which they attend. One member of our board of directors, Mr. Blonkvist, receives a fee of $2,000 per meeting he attends. Mr. Burns receives a per diem payment in accordance with his employment agreement. The other members of our board of directors do not receive a fee for any meetings they attend. Our executive officers are elected by our board of directors to serve at the discretion of our board.

We have entered into indemnification agreements with our directors and executive officers pursuant to which we will indemnify these persons against expenses (including attorney's fees), judgments, fines and amounts paid in settlement incurred as a result of the fact that any of these persons in his or her capacity as a director or officer, is made or threatened to be made a party to any suit or proceeding. These persons will be indemnified to the fullest extent now or hereafter permitted by the General Corporation Law of the State of Delaware.