7. Fixed Asset Impairments and Restructuring Charges

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, in third and fourth quarters of 2002.

An analysis of the payments associated with the restructuring expense provision as of March 29, 2003 is as follows (in thousands):

In conjunction with the facility closures, the Company recorded an impairment of fixed assets expense of $3.8 million in fiscal year 2002 for certain assets which have no future benefit to the Company. Additionally, certain assets were reclassified as "held-for-sale". Assets held for sale at March 29, 2003 are comprised of land and buildings (Baltimore, Maryland and Oregon, Ohio), and certain production equipment. These assets, totaling approximately $5.4 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.

At March 29, 2003, the Company was unconditionally obliged to purchase inventory amounting to $7.8 million. This obligation will be recorded by the Company upon the transfer of title.

The Company is involved in a number of legal actions arising in the ordinary course of business. Although no assurance can be given with respect to the ultimate outcome of any asserted claim or litigation, no material affect on financial position or future operating results is expected.

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 consolidated financial statements requires us to make certain estimates and assumptions that affect the amounts reported, including amounts in the accompanying notes to the consolidated financial statements. Our estimation process generally relates to potential bad debts, damaged and slow moving inventory, value of intangible assets, impairments of long lived assets, and health care and workers compensation claims. We base our judgments on historical experience and various other assumptions that we believe to be reasonable under the circumstances. These judgments result in the amounts shown as carrying values of assets and liabilities in the consolidated financial statements and accompanying notes. Actual results could diff er 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 compared to past experience and current trends. A change in past experience or current 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. Manufacturing and purchase price variances remain an element of inventoriable cost until the inventory is deemed to be sold based on inventory turnover rates. See Note 3 to the Consolidated Financial Statements for discussion of the change in this methodology.

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 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. Additional ly, 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 resulted in no goodwill impairment.

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

Consolidated net sales declined approximately 16% as compared to 2002.

Consolidated gross profit declined approximately 26% as compared to 2002. The gross profit of $13.9 million includes a $860,000 benefit from a change in accounting estimate relating to the portion of the quarter's manufacturing and purchase price variances that remain an element of inventoriable cost versus having an impact on the quarter's cost of sales.

Consolidated selling, general, and administrative expenses increased approximately 10% as compared to 2002.

Other expense increased approximately $800,000 for the first quarter of 2003 as compared to the comparable period in 2002 due primarily to the continuation of expenses associated with the closing of the two welded wire mesh manufacturing facilities late in 2002.

Interest expense increased $0.5 million due primarily to the increase in amounts borrowed under the revolving credit facility to fund the SRP acquisition.

Income tax expense of $109,000 in the first quarter of 2002 compares to an income tax benefit of $3.3 million in the first quarter of 2003 due primarily to the change from income before tax of $285,000 in 2002 to a $7.1 million loss before income tax in the first quarter of 2003. The effective tax rate increased from 38.2 % in the first quarter of 2002 to 47.0% in the first quarter of 2003 due primarily to the relationship of the amount of expenses in the consolidated income statements that can not be deducted on the Company's income tax returns to the overall amount of earnings or loss before income taxes.

Cash Flows. For the fiscal quarter ended March 29, 2003, operating activities used net cash of approximately $0.2 million, a decrease of $2.8 million as compared to the first quarter of 2002. The incurrence of a net loss of $3.8 million versus net income of $176,000 in 2002 was the primary contributor to this decline in cash flow. Cash used in investing activities increased approximately $25.5 million. The acquisition of SRP represented $23.6 million of this increase. In addition, capital expenditures and deposits relating to new equipment accounted for most of the remaining increase. The factors noted above resulted in higher borrowings under the revolving credit facility in first quarter 2003 as compared to 2002.

EBITDA is defined as the sum of income before interest, income taxes, depreciation and amortization. EBITDA is included as a financial measurement because it is used by certain investors as a measure of a company's operational performance and its ability to service its debt. EBITDA should be considered in addition to, not as a substitute for net income or loss, cash flows, or other measures of financial performance in accordance with accounting principles generally accepted in the United States. EBITDA as presented by the Company may not be comparable to similarly titled measures reported by other companies. EBITDA for the first quarter of fiscal year 2003 and 2002 was $2.8 million and $9.5 million, respectively. The decrease in EBITDA is primarily due to a $6.9 million decrease in income before interest and income taxes due to the changes in net sales, gross profit and selling, general and administrative expenses and other expenses discussed in "Results of Operations" above.

On May 8, 2003, we entered into the second amendment to the revolving credit facility, the term of which remains December 12, 2006. The total line of credit increased from $75 million to $115 million. The sum of borrowings and outstanding letters of credit are limited to the lesser of a defined borrowing base computation or $115 million. We expect borrowing base computations to exceed $100 million during the peak seasonal periods, thus the amended facility will enhance liquidity as compared to the previous $75 million credit line. We have initiated discussions with providers of lease financing to fund $10 million to $12.5 million of the project costs relating to the state of the art welding equipment to be placed into service in St. Joseph, Missouri, and Jacksonville, Florida by no later than the third quarter of 2003. Availability under the revolving credit facility will further increase by the amounts received.

The process of amending the revolving credit facility included the waiver by the lenders of the fixed charge coverage ratio covenant test for the period ended March 29, 2003. The amended facility modifies the test to a lower ratio for the period ending June 28, 2003. The ratio test of 1.10 that existed prior to the modification returns for the period ending September 27, 2003 and all subsequent periods. Although we can provide no assurance as to whether future covenant tests will be met, we expect that operational cash flows net of capital expenditures and payments of income taxes will be sufficient in relation to the defined fixed charges to achieve the ratios required in the credit facility agreement.

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.

Our products are used in the commercial, infrastructure, and residential construction industries. These industries are both cyclical and seasonal, and changes in demand for construction services have a material impact on 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 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 The Company's other public reports and filings and public statements.

We are subject to market risk exposure related to changes in interest rates on our revolving credit facility and our senior subordinated notes. Borrowings under the credit facility bear interest, at either the bank's base rate plus generally 0.25% or a Eurodollar rate plus 1.25% to 2.75%, based on a ratio of total funded indebtedness to our previous twelve month adjusted earnings from operations. The 0.25% added to the bank's base rate may reduce to 0.125%, then to zero as the ratio declines. The adjustable margin added to the Eurodollar base rate is 3.00% until a fixed charge coverage ratio covenant of 1.10 is achieved. The fixed rate senior subordinated notes are subject to change in fair value. Our $200.0 million of senior subordinated notes payable are exposed to changes in fair value. At March 29, 2003, the estimated fair value of the notes was $140.5 million. The estimated fair values are based on the quoted market prices. The variation in fair value is a function of market interest rate changes and the investor perception of the investment.

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. Bec ause steel rod comprises a substantial portion of our cost of goods sold, 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.

The certifying officers of the Company are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the company and have; (i) designed such disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this quarterly report is being prepared; and (ii) evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"). Based upon that evaluation, these principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the company, including its consolidated subsidiaries, required to be included in its periodic SEC f ilings.

The Company's certifying officers have indicated that there were no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CERTIFICATIONS

I, John M. Piecuch, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MMI Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

CERTIFICATIONS

I, Robert N. Tenczar, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MMI Products, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

1. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

1. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

1. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
2. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

1. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.