METAL MANAGEMENT INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2002

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

COMMISSION FILE NO. 0-14836

METAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 94-2835068
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

500 N. DEARBORN ST., SUITE 405,
CHICAGO, IL 60610
(312) 645-0700
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE AND TELEPHONE NUMBER)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
SERIES A WARRANTS TO PURCHASE COMMON STOCK

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]

The aggregate market value for the Registrant's voting stock held by
non-affiliates of the Registrant based upon the closing sale price of the common
stock on May 30, 2002 as reported on the NASDAQ over-the-counter bulletin board,
was approximately $23.3 million. Shares of common stock held by each officer and
director and each shareholder who owns 5% or more of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates.
The determination of affiliate status is not necessarily a conclusive
determination for other purposes.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

As of May 30, 2002, the Registrant had 9,369,386 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Report, to the extent not set
forth herein, is incorporated by reference from the Registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
2002, which definitive proxy statement shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.
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TABLE OF CONTENTS

Certain statements contained in this Form 10-K under Item 1, in addition to
certain statements contained elsewhere in this Form 10-K, including statements
qualified by the words "believe," "intend," "anticipate," "expects" and words of
similar import, are "forward-looking statements" and are thus prospective. These
statements reflect the current expectations of Metal Management, Inc. (herein,
"Metal Management," the "Company," "we," "us" or other similar terms) regarding
(i) our future profitability and liquidity and that of our subsidiaries, (ii)
the benefits to be derived from the execution of our industry consolidation
strategy and (iii) other future developments in our business or the scrap metals
recycling industry. All such forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. These risks, uncertainties and other factors are discussed under the
heading "Risk Factors" in Part I, Item 1 of this Report.

PART I

ITEM 1. BUSINESS

GENERAL

We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 14 states. We enjoy leadership
positions in many major metropolitan markets, including Birmingham, Chicago,
Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix, Salt Lake City,
Toledo and Tucson. We have a 28.5% equity ownership position in Southern
Recycling, L.L.C., the largest scrap metals recycler in the Gulf Coast region.
Our operations consist primarily of the collection and processing of ferrous and
non-ferrous metals. We collect industrial scrap and obsolete scrap, process it
into reusable forms and supply the recycled metals to our customers, including
electric arc furnace mills, integrated steel mills, foundries, secondary
smelters and metals brokers. We believe that we provide one of the most
comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. Our ferrous products primarily include shredded, sheared, cold
briquetted and bundled scrap and other purchased scrap, such as turnings, cast
and broken furnace iron. We also process non-ferrous metals, including aluminum,
copper, stainless steel, brass, titanium and high temperature alloys, using
similar techniques and through application of our proprietary technologies.

We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. In making acquisitions, we have focused on major
metropolitan markets where prime industrial and obsolete scrap (automobiles,
appliances and industrial equipment) is readily available and from where we
believe we can better serve our customer base. In pursuing this strategy, we
have acquired regional platform companies to serve as platforms into which
subsequent acquisitions could be integrated. We believe that through the
integration of our acquired businesses, we have enhanced our competitive
position and profitability of the operations because of broader distribution
channels, improved managerial and financial resources, greater purchasing power
and increased economies of scale.

Demolition projects, in which we recycle the metals that demolition
contractors collect from building and road construction projects, also serve as
a source of scrap metals for our recycling operations. In addition, we act as
demolition contractors in certain of our large metropolitan markets in which we
dismantle obsolete machinery, buildings, gasholders and other large structures
containing large quantities of metal and, in the process, collect both the
ferrous and non-ferrous metals from these sources. Our materials handling
expertise and logistics capabilities also afford us unique opportunities to
secure sources of scrap which might not be available to smaller competitors. We
also operate a bus dismantling business combined with a bus replacement parts
business at our Northeast operations.

At certain of our locations, which are adjacent to commercial waterways, we
provide stevedoring services. By providing these services, we increase the
utilization of our equipment and diversify our customer base. While
traditionally most of our stevedoring efforts have been focused at our Port
Newark facility in the Northeast, we have begun to expand these services at our
Midwest locations during our fiscal year ended March 31, 2002.

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RECENT DEVELOPMENTS

On November 20, 2000 (the "Petition Date"), we filed voluntary petitions
(Case Nos. 00-4303 -- 00-4331 (SLR)) under Chapter 11 of the U.S. Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). From November 20, 2000 to June
29, 2001, we operated our businesses as debtors-in-possession. These bankruptcy
proceedings are referred to as the "Chapter 11 proceedings" herein.

We filed a plan of reorganization (the "Plan") pursuant to Chapter 11 of
the Bankruptcy Code on May 4, 2001. The Bankruptcy Court confirmed the Plan
which became effective on June 29, 2001 (the "Effective Date"). As a
consequence, as of the Effective Date, we no longer operate under bankruptcy
protection. In the Chapter 11 proceedings, virtually all suppliers of scrap
metals were paid their pre-petition claims as critical vendors. Additionally,
the Plan provided for the conversion of approximately $215 million of unsecured
debt into common stock, which strengthened our capitalization.

As used in this Report, the term "Predecessor Company" refers to the
Company and its operations for periods prior to the Effective Date, while the
term "Reorganized Company" refers to the Company and its operations for periods
after that date.

In March 2002, the United States federal government ("U.S.") determined
that it would impose tariffs on imports of steel in response to surging steel
imports that caused many U.S. steel mills to file bankruptcy. The tariffs apply
to steel imports from many countries and the tariffs range from 8% to 30%. The
tariffs are staged in over the next three years. The tariffs vary by product
category based on the extent of the damage caused by import surges to different
segments of the steel industry. Generally, the tariffs decline over the
three-year term of the new trade laws. The tariffs are expected to provide
temporary relief to U.S. steel producers and encourage both additional
production of steel in the U.S. in the short run and restructuring of the steel
industry from a global supply perspective in the long run. In response to the
U.S. tariffs, the European Union imposed similar tariffs on imported steel
products.

We believe that many of our domestic customers may benefit during the term
of the tariffs and produce more steel domestically. As a result, we believe that
the tariffs may result in an increased demand for scrap metals in order to
produce more steel in the U.S. It is uncertain however, if domestic production
of steel is increased as a consequence of the tariffs, whether U.S. steel
producers will seek to purchase the incremental raw material requirements from
domestic processors of scrap metals or international processors of scrap metals.
Additionally, domestic steel producers may choose to increase their consumption
of scrap substitutes such as pig iron or other scrap substitutes to satisfy
their incremental raw material requirements.

INTEGRATION AND BRANDING INITIATIVES

We continued to integrate our operations during our 2002 fiscal year to
take advantage of operational efficiencies and cost savings. By way of example,
we have consolidated many of our administrative efforts including sales and
marketing, transportation, procurement of services and employee benefits.
Through our integration efforts, we are also standardizing the reporting systems
and business practices of our operations so that we are better able to evaluate
operating performance. Although we believe that cost savings from the
elimination of redundant functions has been an important benefit of
consolidation, we hope to realize even greater cost benefits from the
implementation of our best management practices across the country.
Additionally, an important part of our integration strategies includes the
development of national account and branding programs.

We believe that our strategy of creating brand awareness for the Metal
Management name will help create awareness among our customers of the size and
geographic scope of our operations and the breadth of our product offerings. We
believe this will benefit us as our customers consolidate their supplier base to
realize purchasing efficiencies.

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INDUSTRY OVERVIEW

According to government sources, total revenues generated in the scrap
metals recycling industry in calendar year 2000 were approximately $20 billion.
In 2000, domestic scrap recyclers handled approximately 71 million tons of
metals including 61 million tons of iron and steel. Although significant
consolidation has occurred in the industry during the past several years, the
industry remains highly fragmented. We believe the scrap metals industry is
comprised of more than 3,000 independent metals recyclers. Many of these
companies are family-owned and operate only in local or regional markets. We
believe that no single scrap metals recycler has a significant share of the
domestic market, although certain recyclers may have significant shares of their
local or regional markets.

Ferrous Scrap Industry. Ferrous scrap, used in most steel making
processes, is the primary raw material for mini-mill steel producers that
utilize electric arc furnace, or EAF technology. Ferrous scrap also sells as a
commodity in international markets which are affected by varying economic
conditions, changing currency valuations, and the availability of ocean-going
vessels and their related costs. By way of example, in 2001, there was an
increase in scrap imports from Europe and reduced export opportunities for scrap
metals from the United States as a result of a strong U.S. dollar. Additionally,
demand for processed ferrous scrap is highly dependent on the overall strength
of the domestic steel industry, particularly production utilizing EAF
technology. Weak industry conditions have caused declines in both pricing and
demand for ferrous scrap since mid-1998. As a consequence of recent improving
economic conditions in the U.S., slowing of imports of steel into the U.S. and
firming of export markets, our ferrous metals business has recently improved.
However, ferrous prices can fluctuate greatly from month to month affecting our
results.

Much of the growth in the scrap metals industry in recent years has
occurred as a result of the proliferation of mini-mill steel producers which
utilize EAF technology. EAF production has increased from 14.8 million tons
(11.1% of total domestic steel production) in 1966 to 53 million tons (47.3% of
total domestic steel production) in 2000. We expect this trend to continue in
the next few years as new EAF facilities start production. We believe that as a
large, reliable supplier of scrap metals, we are well positioned to benefit from
the growth in steel market share associated with EAF production.

The growth in EAF production has been fueled, in part, by the historically
low prices of prepared ferrous scrap and faster conversion time to process,
which gives EAF producers a product cost advantage over integrated steel
producers. Integrated steel producers operate blast furnaces, the primary raw
material feedstock of which are coke and iron ore. If the price of ferrous scrap
metals were to significantly increase, EAF operators may evaluate alternatives
to prepared steel scrap, such as pre-reduced iron pellets or pig iron, to supply
their EAF operations. We do not believe that these alternatives to ferrous scrap
will replace ferrous scrap in EAF operations, but may be used as a supplemental
feedstock thereby allowing EAF operators to utilize lower grades of prepared
scrap. Additional new EAF mini-mill facilities are being built leading us to
expect increasing demand for ferrous scrap over the next several years.

Due to its low price-to-weight ratio, raw ferrous scrap is generally
purchased locally from industrial companies, demolition firms, junk yards,
railroads, the military, scrap dealers and various other sources, typically in
the form of automobile hulks, appliances and plate and structural steel. Ferrous
scrap prices are local and regional in nature, however, where there are
overlapping regional markets, the prices do not tend to differ significantly
between the regions due to the ability of companies to ship scrap from one
region to the other. The most significant limitation on the size of the
geographic market for ferrous scrap is the transportation cost. Therefore, large
volume scrap processing facilities are typically located on or near key modes of
transportation, such as railways and waterways.

Non-Ferrous Scrap Industry. Non-ferrous metals include aluminum, copper,
brass, stainless steel, titanium, high-temperature alloys and other exotic
metals. The geographic markets for non-ferrous scrap tend to be larger than
those for ferrous scrap due to the higher selling prices of non-ferrous metals,
which justify the cost of shipping over greater distances. Non-ferrous scrap is
typically sold on a spot basis, either directly or through brokers, to
intermediate or end-users, which include smelters, foundries and aluminum sheet
and ingot manufacturers. Prices for non-ferrous scrap are driven by demand for
finished non-ferrous metal goods and by the general level of economic activity,
with prices generally linked to the price of the primary metal on
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the London Metals Exchange or COMEX. Suppliers and consumers of non-ferrous
metals can also use these exchanges to hedge against future price fluctuations
by buying or selling futures contracts. While ferrous markets have strengthened
during Fiscal 2002, the non-ferrous markets have not demonstrated signs of
recovery during such period. The conditions of non-ferrous markets are generally
weak. In particular, we have experienced significant weakness in the stainless
steel product line of our non-ferrous business.

Secondary smelters, utilizing processed non-ferrous scrap as raw material,
can produce non-ferrous metals at a lower cost than primary smelters producing
such metals from ore. This is due to the significant savings in energy
consumption, environmental compliance, and labor costs enjoyed by the secondary
smelters. These cost advantages, and the long lead-time necessary to construct
new non-ferrous primary smelting facilities, have generally resulted in
sustained demand and strong prices for processed non-ferrous scrap during
periods of high demand for finished non-ferrous metal products.

Non-ferrous scrap is typically generated and supplied to us by: (i)
manufacturers and other sources that process or sell non-ferrous metals; (ii)
telecommunications, aerospace, defense and recycling companies that generate
obsolete scrap consisting primarily of copper wire, used beverage cans and other
non-ferrous metal alloys; and (iii) ferrous scrap operations that recover
aluminum, zinc, die-cast metal, stainless steel and copper as by-products from
processing of ferrous scrap. The most widely recycled non-ferrous metals are
aluminum, copper and stainless steel.

RECYCLING OPERATIONS

Our recycling operations encompass buying, processing and selling scrap
metals. The principal forms in which scrap metals are generated include
industrial scrap and obsolete scrap. Industrial scrap results as a by-product
generated from residual materials from metals manufacturing processes. Obsolete
scrap consists primarily of residual metals from old or obsolete consumer and
industrial products such as appliances and automobiles.

Ferrous Operations

Ferrous Scrap Purchasing. We purchase ferrous scrap from two primary
sources: (i) manufacturers who generate steel and iron, known as prompt or
industrial scrap; and (ii) junkyards, demolition firms, railroads, the military
and others who generate steel and iron scrap, known as obsolete scrap. In
addition to these sources, we purchase, at auction, furnace iron from integrated
steel mills and obsolete steel and iron from government and large industrial
accounts. We also purchase materials from scrap dealers, peddlers and auto
wreckers who collect and deliver obsolete scrap directly to our processing
facilities. Market demand and the composition, quality, size, and weight of the
materials are the primary factors that determine prices.

Ferrous Scrap Processing. We prepare ferrous scrap metal for resale
through a variety of methods including sorting, shredding, shearing or cutting,
baling, briquetting or breaking. We produce a number of differently sized and
shaped products depending upon customer specifications and market demand.

Sorting. After purchasing ferrous scrap metal, we inspect the
material to determine how it should be processed to maximize profitability.
In some instances, scrap may be sorted and sold without further processing.
We separate scrap for further processing according to its size and
composition by using conveyor systems, front-end loaders, crane-mounted
electromagnets or claw-like grapples.

Shredding. Obsolete consumer scrap such as automobiles, home
appliances and other consumer goods, as well as certain light gauge
industrial scrap, is processed in our shredding operation. These items are
fed into a shredder that quickly breaks the scrap into fist-size pieces of
ferrous metal. The shredding process uses magnets and other technologies to
separate ferrous, non-ferrous and non-metallic materials. The ferrous
material is sold to our customers, including mini-mills. We recover
non-ferrous metals as a part of the shredding process that we refer to as
residue. Residue is sold through monthly auctions to customers that sort
and recover intrinsic metals from the residue. The non-metallic by-product
of the shredding operations, referred to as "shredder fluff," is disposed
of in third-party landfills.

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Shearing or Cutting. Pieces of oversized ferrous scrap, such as
obsolete steel girders and used drill pipes, which are too large for other
processing, are cut with hand torches, crane-mounted alligator shears or
stationary guillotine shears. After being reduced to specific lengths or
sizes, the scrap is then sold to those customers who can accommodate larger
materials, such as mini-mills.

Baling. We process light-gauge ferrous metals such as clips and sheet
iron, and by-products from industrial manufacturing processes, such as
stampings, clippings and excess trimmings, by baling these materials into
large, uniform blocks. We use cranes, front-end loaders and conveyors to
feed the metal into hydraulic presses, which compress the materials into
uniform blocks at high pressure.

Briquetting. We process borings and turnings made of steel and iron
into briquettes using cold briquetting methods, and subsequently sell these
briquettes to steel mills or foundries. We possess the technology to
control the metallurgical content of briquettes to meet customer
specifications.

Breaking of Furnace Iron. We process furnace iron which includes
blast furnace iron, steel pit scrap, steel skulls and beach iron. Large
pieces of iron are broken down by the impact of forged steel balls dropped
from cranes. The fragments are then sorted and screened according to size
and iron content.

Ferrous Scrap Sales. We sell processed ferrous scrap to end-users such as
steel mini-mills, integrated steel makers and foundries, and brokers who
aggregate materials for other large users. Most of our customers purchase
processed ferrous scrap according to a negotiated spot sales contract which
establishes the quantity purchased for the month. The price we charge for
ferrous scrap depends upon market demand, as well as quality and grade of the
scrap. In many cases, our selling price also includes the cost of transportation
to the end-user. We believe our profitability may be enhanced by our offering a
broad product line to our customers. Our ferrous scrap sales are accomplished
through a monthly sales program managed nationally. We believe that our
coordinated ferrous marketing initiatives will allow us to be a uniquely capable
supplier of scrap as we are able to fill larger quantity orders due to our
ability to secure large amounts of raw materials.

Non-Ferrous Operations

Non-Ferrous Scrap Purchasing. We purchase non-ferrous scrap from three
primary sources: (i) manufacturers and other non-ferrous scrap sources who
generate or sell waste aluminum, copper, stainless steel, brass,
high-temperature alloys and other metals; (ii) producers of electricity,
telecommunication service providers, aerospace, defense, and recycling companies
that generate obsolete scrap consisting primarily of copper wire, titanium and
high-temperature alloys and used aluminum beverage cans; and (iii) peddlers who
deliver directly to our facilities material which they collect from a variety of
sources. We also collect non-ferrous scrap from sources other than those that
are delivered directly to our processing facilities by placing retrieval boxes
near these sources. The boxes are subsequently transported to our processing
facilities.

A number of factors can influence the continued availability of non-ferrous
scrap such as the level of manufacturing activity and the quality of our
supplier relationships. Consistent with industry practice, we have certain
long-standing supply relationships (which generally are not the subject of
written agreements) that we believe will improve as a result of implementing our
consolidation strategy.

Non-Ferrous Scrap Processing. We prepare non-ferrous scrap metals,
principally stainless steel, copper and aluminum, for resale by sorting,
shearing, cutting, chopping or baling.

Sorting. Our sorting operations separate non-ferrous scrap by using
conveyor systems and front-end loaders. In addition, many non-ferrous
metals are sorted and identified by using grinders, hand torches, eddy
current separation systems and spectrometers. Our ability to identify
metallurgical composition is critical to maintaining high margins and
profitability. Due to the high value of many non-ferrous metals, we can
afford to utilize more labor-intensive sorting techniques than are employed
in our ferrous operations. We sort non-ferrous scrap for further processing
according to type, grade, size and chemical composition. Throughout the
sorting process, we determine whether the material requires further
processing before being sold.

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Copper. Copper scrap may be processed in several ways. We process
copper scrap predominantly by using wire choppers which grind the wire into
small pellets. During chopping operations, the plastic casing of the wire
is separated from the copper using a variety of techniques. In addition to
wire chopping, we process copper scrap by baling and other repacking
methods to meet customer specifications.

Aluminum and Stainless Steel. We process aluminum and stainless steel
based on the size of the pieces and customer specifications. Large pieces
of aluminum or stainless steel are cut using crane-mounted alligator shears
and stationary guillotine shears and are baled along with small aluminum or
stainless steel stampings to produce large bales of aluminum or stainless
steel. Smaller pieces of aluminum and stainless steel are repackaged to
meet customer specifications.

Other Non-Ferrous Materials. We process other non-ferrous metals
using similar cutting, baling and repacking techniques as used to process
aluminum. Other significant non-ferrous metals we process include titanium,
brass and high-temperature alloys.

Non-Ferrous Scrap Sales. We sell processed non-ferrous scrap to end-users
such as specialty steelmakers, foundries, aluminum sheet and ingot
manufacturers, copper refineries and smelters, and brass and bronze ingot
manufacturers. Prices for the majority of non-ferrous scrap metals change based
upon the daily publication of spot and futures prices on the COMEX or London
Metals Exchange.

SEASONALITY AND OTHER CONDITIONS

Our operations can be adversely affected by protracted periods of inclement
weather or reduced levels of industrial production, which could reduce the
volume of material processed at our facilities. In addition, periodic
maintenance shutdowns or labor disruptions at our larger customers may have an
adverse impact on our operations. Our business generally experiences seasonal
slowness in the months of July and December as customers tend to reduce
production and inventories.

EMPLOYEES

As of March 31, 2002, we employed 1,491 persons, 778 of whom were covered
by collective bargaining agreements. Our management believes that we have good
relations with our employees.

RESEARCH AND DEVELOPMENT

Our expenditures on research and development have not been material for the
nine months ended March 31, 2002, the three months ended June 30, 2001 and for
the years ended March 31, 2001 and 2000, and we are not currently involved in
any significant research and development projects.

CAPITAL EXPENDITURES

The scrap metals recycling business is capital intensive. For the nine
months ended March 31, 2002 and the three months ended June 30, 2001, we
invested approximately $3.3 million and $1.4 million, respectively, for
replacement of equipment and expansion of our operations. We currently expect to
invest approximately $10 million in capital investment during Fiscal 2003.

SIGNIFICANT CUSTOMERS

For the nine months ended March 31, 2002, our 10 largest customers
represented approximately 39% of consolidated net sales. These customers
comprised approximately 36% of accounts receivable at March 31, 2002. Sales to
The David J. Joseph Company, our largest customer and an agent for Nucor
Corporation, represented approximately 14% of our consolidated net sales for the
nine months ended March 31, 2002. The loss of any one of our significant
customers could have a material adverse effect on our results of operations and
financial condition.

We historically have not experienced material losses from the noncollection
of accounts receivables. However, since April 2000, weak market conditions in
the steel sector led to bankruptcy filings by certain of

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our customers including, but not limited to, LTV Steel Company, Inc. and
Northwestern Steel and Wire Company. Since April 2000, bankruptcy filings by our
customers resulted in uncollected receivables of approximately $8 million.

COMPETITION

The markets for scrap metals are highly competitive, both in the purchase
of raw scrap and the sale of processed scrap. With regard to the purchase of raw
scrap, we compete with numerous independent recyclers, as well as smaller scrap
companies engaged only in collecting industrial scrap. Successful procurement of
materials is determined primarily by the price offered by the purchaser for the
raw scrap and the proximity of the processing facility to the source of the raw
scrap. With regard to the sale of processed scrap, we compete with other
regional and local scrap metals recyclers. Competition for sales of processed
scrap is based primarily on the price and quality of the scrap metals, as well
as the level of service provided in terms of reliability and timing of delivery.
We believe that our ability to process substantial volumes, deliver a broad
product line to consumers, collect and sell scrap at both a regional and
national level and provide other value-added services to our customers gives us
a competitive advantage.

We face potential competition for sales of processed scrap from producers
of steel products, such as integrated steel mills and mini-mills, which may
vertically integrate their current operations by entering the scrap metals
recycling business. Many of these producers have substantially greater
financial, marketing and other resources than we do. Scrap metals processors
also face competition from substitutes for prepared ferrous scrap, such as
pre-reduced iron pellets, hot briquetted iron, pig iron, iron carbide and other
forms of processed iron. The availability of substitutes for ferrous scrap could
result in a decreased demand for processed ferrous scrap, which could result in
lower prices for such products.

BACKLOG

The processing time for scrap metals is generally sufficiently short so as
to permit us to fill orders for most of our products in a period of time which
is generally less than thirty days. Accordingly, we do not consider backlog to
be material to our business.

PATENTS AND TRADEMARKS

Although we and our subsidiaries own certain patents and trademarks, we do
not believe that our business is dependent on these intellectual property rights
and the loss of any patent or trademark or the use thereof would not be material
to our business.

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RISK FACTORS

Set forth below are risks that we believe are material to our business
operations. Additional risks and uncertainties not known to us or that we
currently deem immaterial may also impair our business operations.

The bankruptcy may have created a negative image of us.

The effect, if any, which our bankruptcy proceedings may have on our future
operations cannot be accurately predicted or quantified. We believe that our
bankruptcy and consummation of our Plan has not had a material impact on our
relationships with our customers, employees and suppliers. Nevertheless, there
could be a detrimental impact on future sales and patronage because of the
negative image of us that may have been created by our bankruptcy.

Financial information related to our post-emergence operations is limited.

Because we emerged from bankruptcy on June 29, 2001, there is limited
operating and financial data available from which to analyze our operating
results and cash flows. As a result of fresh-start reporting, a comparison of
information reflecting our results of operations and financial condition after
our emergence from bankruptcy to prior periods may not be meaningful.

We are highly leveraged.

As of March 31, 2002, we had $134 million of debt outstanding. Subject to
certain restrictions, exceptions and financial tests set forth in certain of our
debt instruments, we may incur additional indebtedness in the future. The degree
to which we are leveraged could have important negative consequences to the
holders of our securities, including the following:

- a substantial portion of our cash flow from operations will be needed to
pay debt service and will not be available to fund future operations;

- our ability to obtain additional future financing for acquisitions,
capital expenditures, working capital or general corporate purposes could
be limited;

- we will have increased vulnerability to adverse general economic and
metals recycling industry conditions; and

- we may be vulnerable to higher interest rates because interest expense on
borrowings under our $150 million, two-year credit agreement (the "Credit
Agreement") are based on interest rates equal to a base rate that is
variable.

Our business may not generate sufficient cash flow from operations and
future working capital borrowings may not be available in an amount sufficient
to enable us to service our indebtedness, or make necessary capital
expenditures.

Our Credit Agreement becomes due on June 29, 2003 and we may be unable to find
replacement financing.

Our Credit Agreement expires on June 29, 2003. Although we expect to be
able to renew the Credit Agreement prior to June 2003, there is no assurance
that this will be the case. If we cannot renew our Credit Agreement on favorable
terms, we may be required to seek alternative financing for our working capital
needs. The terms on which we may be able to obtain replacement financing may not
be as favorable as under the Credit Agreement and may cause dilution to holders
of our Common Stock.

8

Our indebtedness contains covenants that restrict our ability to engage in
certain transactions.

Our Credit Agreement and the indenture governing our 12 3/4%, $34.0 million
secured notes, due June 2004 (the "New Notes") contain covenants that, among
other things, restrict our ability to:

- incur additional indebtedness;

- pay dividends;

- prepay subordinated indebtedness;

- dispose of some types of assets;

- make capital expenditures;

- create liens and make acquisitions; and

- engage in some fundamental corporate transactions.

In addition, under our Credit Agreement, we are required to satisfy
specified financial covenants, including an interest coverage ratio and a
leverage ratio. Our ability to comply with these covenants may be affected by
general economic conditions, industry conditions, and other events beyond our
control. Our breach of any of these covenants could result in a default under
our Credit Agreement. In the event of a default, the lenders could elect to
declare all amounts borrowed under our Credit Agreement, together with accrued
interest, to be due and payable. In addition, a default under the indenture
governing our New Notes would constitute a default under our Credit Agreement
and possibly other instruments governing our other indebtedness.

The indenture governing our New Notes contains restrictions on our ability
to incur additional indebtedness, subject to certain exceptions, unless we meet
a fixed charge coverage ratio of 2.0 to 1.0 for the immediately preceding four
calendar quarters. Our ability to incur additional indebtedness to maintain
necessary levels of liquidity may be limited.

The metals recycling industry is highly cyclical.

The operating results of the scrap metals recycling industry in general,
and our operations specifically, are highly cyclical in nature. They tend to
reflect and be amplified by general economic conditions, both domestically and
internationally. Historically, in periods of national recession or periods of
slowing economic growth, the operations of scrap metals recycling companies have
been materially and adversely affected. For example, during recessions or
periods of slowing economic growth, the automobile and the construction
industries typically experience major cutbacks in production, resulting in
decreased demand for steel, copper and aluminum. This leads to significant
fluctuations in demand and pricing for our products. Future economic downturns
in the national and international economy would likely materially and adversely
affect our results of operations and financial condition. Our ability to
withstand significant economic downturns in the future will depend in part on
our level of capital and liquidity.

Our business may also be adversely affected by increases in steel imports
into the United States which will generally have an adverse impact on domestic
steel production and a corresponding adverse impact on the demand for scrap
metals. For example, beginning in July 1998, the domestic steel industry and, in
turn, the metals recycling industry suffered a dramatic and precipitous
collapse, resulting in a significant decline in the price and demand for scrap
metals. The decline in the steel and scrap metal sectors was the result, in
large part, of the increase in steel imports flowing into the United States
during the last six months of 1998. Our results of operations were adversely
impacted by reduced steel production in the United States during Fiscal 1999.

During Fiscal 2001, our business was adversely affected by slowing
economies and a strong U.S. dollar. The slowing domestic economy caused
operating rates at U.S. steel producers to decline. Consequently, our unit sales
declined and precluded us from generating sufficient margins to cover our fixed
charges, causing substantial losses. The strong dollar not only precluded us
from exporting inventories, but served as a

9

mechanism that attracted scrap to the United States from other countries which
further depressed prices for our products.

During Fiscal 2002, our business was negatively affected by a recession in
the U.S. and a slowdown in industrial production. Our ferrous business began to
demonstrate recovery late in the fiscal year. Our non-ferrous business,
including stainless steel, wire chopping and high-temperature alloy businesses,
did not experience a recovery in Fiscal 2002.

Prices of commodities we own may be volatile.

Although we seek to turn over our inventory of raw or processed scrap
metals as rapidly as possible, we are exposed to commodity price risk during the
period that we have title to products that are held in inventory for processing
and/or resale. Prices of commodities, including scrap metals, can be volatile
due to numerous factors beyond our control, including:

- general economic conditions;

- labor costs;

- competition;

- financial condition of our major customers;

- the availability of imports;

- the availability and relative pricing of scrap metal substitutes;

- import duties; and

- tariffs and currency exchange rates.

In an increasing price environment, competitive conditions may limit our
ability to pass on price increases to our customers. In a decreasing price
environment, we may not have the ability to fully recoup the cost of raw scrap
we process and sell to our customers.

Our operations present significant risk of injury or death.

Because of the heavy industrial activities conducted at our facilities,
there exists a risk of injury or death to our employees or other visitors of our
operations, notwithstanding the safety precautions we take. During Fiscal 2000
through Fiscal 2002, two accidental employee deaths and a number of serious
accidental injuries, have occurred at our facilities. Our operations are subject
to regulation by federal, state and local agencies responsible for employee
health and safety, including the Occupational Safety and Health Administration
("OSHA"). We, or our Predecessor Company, have been fined in regard to some of
these incidents. While we have in place policies to minimize such risks, we may
nevertheless be unable to avoid material liabilities for any employee death or
injury that may occur in the future and these types of incidents may have a
material adverse effect on our results of operations and financial condition.

We may not be able to negotiate future labor contracts on favorable terms.

Approximately half of our active employees are represented by various labor
unions, including the Teamsters Union, the United Steel Workers Union and the
United Auto Workers. As our agreements with those unions expire, we may not be
able to negotiate extensions or replacements on terms favorable to us, or at
all, or avoid strikes, lockouts or other labor actions from time to time. We
cannot assure you that new labor agreements will be reached with our unions as
those labor contracts expire. Any labor action resulting from the failure to
reach an agreement with one of our unions may have a material adverse effect on
our operations.

10

The loss of any member of our senior management team or a significant number
of our managers could have a material adverse effect on our operations.

Our operations depend heavily on the skills and efforts of our senior
management team, including Albert A. Cozzi, our Chairman and Chief Executive
Officer, and Michael W. Tryon, our President and Chief Operating Officer. In
addition, we rely substantially on the experience of the management of our
subsidiaries with regard to day-to-day operations. While we have employment
agreements with Messrs. Cozzi and Tryon and certain members of our management
team at the subsidiary level, we may nevertheless be unable to retain the
services of any of those individuals. The loss of any member of our senior
management team or a significant number of managers could have a material
adverse effect on our operations.

The profitability of our scrap recycling operations depends, in part, on the
availability of an adequate source of supply.

We acquire our scrap inventory from numerous sources. These suppliers
generally are not bound by long-term contracts and have no obligation to
continue selling scrap materials to us. In periods of low industry prices,
suppliers may elect to hold scrap waiting for higher prices. If a substantial
number of scrap suppliers cease selling scrap metals to us, we would be unable
to recycle metals at desired levels and our results of operations or financial
condition would be materially and adversely affected.

The concentration of our customers and our exposure to credit risk could have
a material adverse effect on our results of operations and financial
condition.

Sales to our ten largest customers represented approximately 39% of
consolidated net sales in the nine months ended March 31, 2002. Accounts
receivable balances from these customers represented approximately 36% of
consolidated accounts receivable at March 31, 2002. Sales in the nine months
ended March 31, 2002 to The David J. Joseph Company represented approximately
14% of consolidated net sales. The loss of any of our significant customers or
our inability to collect accounts receivables would negatively impact our
revenues and profitability.

The loss of any significant customers could adversely affect our results of
operations and financial condition.

In connection with the sale of our products, we generally do not require
collateral as security for customer receivables. Some of our subsidiaries have
significant balances owing from customers that operate in cyclical industries
and under leveraged conditions that may impair the collectibility of those
receivables. Failure to collect a significant portion of amounts due on those
receivables could have a material adverse effect on our results of operations
and financial condition.

During the weakening cycle for the steel business evident in Fiscal 2001,
there were bankruptcies filed by many large steel producers. In particular, our
results were adversely effected by bankruptcies of LTV Steel Company, Inc. and
Northwestern Steel and Wire Company. Since April 2000, bankruptcy filings by our
customers resulted in uncollected receivables of approximately $8 million. While
we have made significant efforts to improve the monitoring of credit exposure to
our customers, we may experience further losses as conditions in the metals
sector generally remain weak.

A significant increase in the use of scrap metals alternatives by current
consumers of processed scrap metals could reduce demand for our products.

During periods of high demand for scrap metals, a tightness can develop in
the supply and demand balance for ferrous scrap. The relative scarcity of
ferrous scrap, particularly the "cleaner" grades, and its high price during such
periods have created opportunities for producers of alternatives to scrap
metals, such as pig iron and direct reduced iron pellets. Although these
alternatives have not been a major factor in the industry to date, we cannot
assure you that the use of alternatives to scrap metals may proliferate in the
future if the prices for scrap metals rise or if the levels of available
unprepared ferrous scrap decrease.

11

Our operations are subject to stringent regulations, particularly under
applicable environmental laws.

We are subject to comprehensive local, state, federal and international
statutory and regulatory requirements relating to, among others:

- the acceptance, storage, treatment, handling and disposal of solid and
hazardous waste;

- the discharge of materials into air;

- the management and treatment of wastewater and storm water;

- the remediation of soil and groundwater contamination;

- the restoration of natural resource damages; and

- the protection of our employees' health and safety.

We believe that we and our subsidiaries are currently in material
compliance with applicable statutes and regulations governing the protection of
human health and the environment, including employee health and safety. We can
give you no assurance, however, that we and our subsidiaries will continue to be
in compliance, avoid material fines, penalties and expenses associated with
compliance issues in the future.

The nature of our business and previous operations by others at facilities
owned or operated by us expose us to risks of claims under environmental laws
and regulations, especially for the remediation of soil or groundwater
contamination. We can give you no assurance, however, that we can avoid making
material expenditures for remedial activities with regard to sites owned or
operated by us or our subsidiaries.

Environmental statutes and regulations have changed rapidly in recent
years, and it is likely that we will be subject to even more stringent
environmental standards in the future. For these reasons, we cannot predict
future capital expenditures for pollution control equipment with accuracy.
However, we expect that environmental standards will become increasingly more
stringent and that the expenditures necessary to comply with those heightened
standards will correspondingly increase.

We are required to obtain, and must comply with, various permits and
licenses to conduct our operations. Violations of any permit or license, if not
remedied, could result in our incurring substantial fines, suspension of
operations or closure of a site. Further, our operations are conducted primarily
outdoors and as such, depending on the nature of the ground cover, involve the
risk of releases of regulated materials to the soil and, possibly, to
groundwater. There can be no assurance that material expenditures will not be
required to prevent or address any such conditions. For example, we are
currently making improvements to reduce these kinds of risks at our North Haven,
Connecticut site. The cost to make those improvements are included in the
indemnification claim that we have brought against the seller of the property to
us. See the discussion in Item 3., Legal Proceedings.

Because the scrap metals recycling industry has the potential for
discharging regulated materials into the environment, we believe that in any
given year, a significant portion of our capital expenditures may be related,
directly or indirectly, to pollution control or environmental remediation.
Nevertheless, expenditures for environmentally-related capital improvements were
not material in Fiscal 2002. However, for the reasons explained above, there can
be no assurance that this will continue to be the case in the future.

Some of our sites are likely to be contaminated. Pre-transaction reviews
and environmental assessments of our operating sites conducted by independent
environmental consulting firms have revealed that some soil, surface water
and/or groundwater contamination, including various metals, arsenic,
petrochemical byproducts, waste oils, polychlorinated biphenyls and volatile
organic compounds, is present at certain of our operating sites. Based on our
review of these reports, we believe that it is likely that contamination at
varying levels exists at many of our sites, and we anticipate that some of our
sites could require investigation, monitoring and remediation in the future.
Moreover, the costs of such remediation could be material.

We are currently undertaking investigation or remediation at two sites. At
one of our Metal Management Midwest, Inc. yard operations, during the removal of
underground storage tanks used to fuel our vehicles, we discovered soil
contamination. We are removing the contaminated soil, and our current reserve
includes an
12

amount for this clean-up. We are also in the initial stage of investigation at
the North Haven, Connecticut site. This matter is discussed more fully in Item
3., Legal Proceedings.

We typically make cash outlays as we incur the actual costs relating to the
remediation of environmental liabilities at sites that we own or operate. In
this regard, we have established an overall reserve of $0.7 million at March 31,
2002 for environmental remediation liabilities that have been identified and
quantified.

We may lack adequate environmental impairment insurance. In general,
neither we nor our subsidiaries carry environmental impairment liability
insurance. If we or one or more of our subsidiaries were to incur significant
liability for environmental damage, such as a claim for soil or groundwater
remediation, not covered by environmental impairment insurance, our results of
operations and financial condition could be materially adversely affected.

There are risks associated with certain by-products of our operations. Our
scrap metals recycling operations produce significant amounts of wastes. For
example, certain of our subsidiaries operate shredders for which the primary
feed materials are automobile hulks and obsolete household appliances.
Approximately 20% of the weight of an automobile hulk consists of material,
referred to as "shredder fluff," which remains after the segregation of ferrous
and saleable non-ferrous metals. State and federal environmental regulations
require that we test shredder fluff before disposing of it off-site in permitted
landfills. We endeavor to remove hazardous contaminants from the feed material
prior to shredding to reduce the possibility that the shredder fluff could be
classified as a hazardous waste thereby causing us to incur significantly higher
waste handling and disposal charges. We can give no assurance, however, that
such hazardous contaminants will be successfully removed or that the higher
charges will be avoided.

We may have potential Superfund liability. Prior to the Chapter 11
proceedings, certain of our subsidiaries had received notices from the United
States Environmental Protection Agency ("USEPA") that these companies and
numerous other parties are considered potentially responsible parties and may be
obligated under Superfund, or similar state regulatory schemes, to pay a portion
of the cost of remedial investigation, feasibility studies and, ultimately,
remediation to correct alleged releases of hazardous substances at various third
party sites. Superfund may impose joint and several liability for the costs of
remedial investigations and actions on the entities that arranged for disposal
of certain wastes, the waste transporters that selected the disposal sites, and
the owners and operators of these sites. Responsible parties (or any one of
them) may be required to bear all of such costs regardless of fault, legality of
the original disposal, or ownership of the disposal site.

Certain of our subsidiaries have been identified in the past as potential
responsible parties under Federal Superfund laws and similar state laws as a
result of the delivery of scrap metals and other recyclable materials to scrap
metal recycling facilities that later became Superfund sites. During our
bankruptcy proceedings, for example, we agreed to pay approximately $153,000 to
the Jack's Creek PRP Group relative to the Jack's Creek Superfund site in
Pennsylvania. In addition, the USEPA, during our bankruptcy proceedings, alleged
that two of our subsidiaries were responsible under Superfund for remediation
costs at the Consolidated Iron & Metal Superfund Site in New York. We are
actively defending this claim and believe that valid procedural and substantive
defensives exist with respect to USEPA's claims with respect to this site.
Because Superfund laws impose joint and several liability on a party
irrespective of the level of contribution to the contamination of a Superfund
site, a determination of liability on the part of our subsidiaries with respect
to the Consolidated Iron & Metal Superfund site could have a material adverse
effect on our financial condition and results of operation.

We have an accumulated deficit and our Predecessor Company has a history of
significant losses.

Our Predecessor Company incurred pre-tax losses of approximately $460
million from April 1, 1997 through March 31, 2001. At June 29, 2001, prior to
the application of fresh-start reporting, the Predecessor Company had an
accumulated deficit of $477.7 million. Although this accumulated deficit was
eliminated effective June 30, 2001, we had an accumulated deficit of $6.1
million as of March 31, 2002 and we cannot assure you that we will not incur
additional losses in the future.

13

Our security holders may experience dilution from the issuance of Common Stock
underlying employment contracts.

Three of our employees have employment contracts that require us to issue
Common Stock if their employment is not terminated prior to July 7, 2003 (the
"Employment Condition"). The employment contracts require the issuance of an
aggregate of $1,000,000 of Common Stock if the Employment Condition is
satisfied. The number of shares that will be issued will be determined by
prevailing prices for our Common Stock for the ten days preceding July 7, 2003.

Holders of our common stock may face a lack of liquidity and an absence of an
active market for our Common Stock.

Our Common Stock has only been trading on the Nasdaq over-the-counter
bulletin board since November 19, 2001. As a result, there is currently a very
limited trading market for our Common Stock. We cannot assure you that any
active trading market will develop or will be sustained for our Common Stock.

Even if an active or national market for our Common Stock develops, it may
be subject to disruptions that will make it difficult or impossible for the
holders of our Common Stock to sell shares at a time or a price they would like,
and they may be unable to sell them at all. Additionally, in recent years, the
stock market has experienced a high level of price and volume volatility and
market prices for the stock of many companies (particularly of companies the
common stock of which trades in the over-the-counter market) have experienced
wide price fluctuations that have not necessarily been related to the operating
performance or prospects of such companies.

ITEM 2. PROPERTIES

Our facilities generally are comprised of:

- processing areas;

- warehouses for the storage of repair parts and certain types of raw and
processed scrap;

- covered and open storage areas for raw and processed scrap;

- machine or repair shops for the maintenance and repair of vehicles and
equipment;

- scales for weighing scrap;

- loading and unloading facilities; and

- administrative offices.

Most of our facilities have specialized equipment for processing various
types and grades of raw scrap which may include a heavy duty automotive shredder
to process both ferrous and non-ferrous scrap, crane-mounted alligator or
stationary guillotine shears to process large pieces of heavy scrap, wire
stripping and chopping equipment, baling equipment and torch cutting facilities.

The following table sets forth information regarding our principal
properties:

We believe that our facilities are suitable for their present and intended
purposes and that we have adequate capacity for our current levels of operation.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in various litigation matters involving
ordinary and routine claims incidental to our business. A significant portion of
these matters result from environmental compliance issues and workers
compensation related claims applicable to our operations. There are presently no
legal proceedings pending against us, which, in the opinion of our management,
are likely to have a material adverse effect on our business, financial
condition or results of operations. However, we are involved in the litigation
as described below.

The Connecticut Department of Environmental Protection ("DEP") has
inspected the North Haven, Connecticut facility (the "facility") of Metal
Management Connecticut, Inc. and alleged that certain contaminants, including
oily material and certain metals, had been and continue to be released from the
facility into the environment. The DEP has informed us that it intends to
require an environmental investigation of the facility to determine the source
of the contaminants and the remediation of the contaminant source areas to
appropriate levels. To date, the DEP has not formally requested that we perform
the investigation or remediation.

The facility was acquired from Michael Schiavone & Sons, Inc. and related
companies ("Schiavone") on July 1, 1998, pursuant to an asset purchase agreement
(the "Agreement"). The DEP has also informed us that it believes that Schiavone
failed to comply with Connecticut's Transfer Act, Conn.Gen.Stat. sec. 22a-134 et
seq., at the time of the sale; in particular, the DEP's position is that
Schiavone should have conducted a formal investigation of the facility at the
time of the sale and reported the results to the DEP.

At this stage, it is not possible to predict the cost of any required
investigation and/or remediation at the facility. The Agreement contains
provisions pursuant to which we intend to seek indemnification from Schiavone
for some or all of the claims and liabilities arising from this matter and that
arose before the closing date. On April 7, 2000, we gave written notification to
Schiavone that we intend to seek indemnification for the potential environmental
liabilities identified at the facility, including the potential DEP required
investigation and remediation and the removal of certain underground storage
tanks, and the disposal of several drums of nickel-cadmium powder. On May 2,
2000, Schiavone denied that it was responsible for indemnification, claiming
among other arguments that the notification was premature because the
liabilities were still potential in nature and therefore no "loss" had occurred,
and that at least some of the environmental liabilities did not predate the
closing date.

Metal Management Midwest, Inc. operates seven facilities in the Chicago
area (the "MMMI Facilities") which have been the subject to a series of
inspections dating back to the mid-1990s by, among other agencies, the United
States Environmental Protection Agency ("USEPA") pursuant to the so-called
Greater Chicagoland Initiative to perform multimedia and multi-agency
inspections of scrap yards in the Chicago Area (the "USEPA Initiative"). The
USEPA Initiative included the MMMI Facilities and inspections have occurred
since 1997. In addition, the MMMI Facilities have responded to multiple document
requests.

In a letter dated January 10, 2000, USEPA alleged that certain of the MMMI
Facilities had violated certain provisions of the Resource Conservation and
Recovery Act, the Clean Air Act, the Clean Water Act, the Oil Pollution
Standards and the Toxic Substances Control Act. The ensuing dialogue with the
USEPA reached an impasse, and the Department of Justice filed suit in June 2001.
We have vigorously defended this

16

matter. We are also engaged in settlement discussions with the United States.
However, as with any litigation matter, outcomes are uncertain until definitive
settlement terms are reached or the case is litigated. Due to the initiation of
our bankruptcy proceedings, any monetary judgement related to these proceedings,
to the extent that the same would constitute a "claim" under the Bankruptcy
Code, would be satisfied through the issuance of Common Stock from a reserve we
established in the bankruptcy proceedings to address unliquidated or disputed
claims. Any issues related to ongoing compliance, however, and any claims that
the MMMI Facilities continue to be in violation of environmental law for periods
after the commencement of our bankruptcy proceedings could result in substantial
monetary penalties or injunctive relief.

On November 20, 2000 (the "Petition Date"), we filed voluntary petitions
(Case Nos. 00-4303 -- 00-4331 (SLR)) under Chapter 11 of the U.S. Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). We emerged from bankruptcy on
June 29, 2001, although the bankruptcy proceedings are currently still pending
for the purposes of resolving several unliquidated claims. The only significant
bankruptcy claim, which has not been substantially resolved, is the claim filed
by USEPA against Metal Management Midwest, Inc. referred to above.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to our shareholders during the fourth quarter of
Fiscal 2002.

17

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Since November 2001, our Common Stock has traded on the Nasdaq OTC Bulletin
Board under the symbol "MLMG." Although we emerged from bankruptcy on June 29,
2001, distributions of Common Stock pursuant to the Plan were not made until
October 2001 and trading of our Common Stock did not occur until November 19,
2001. The common stock of the Predecessor Company was listed on Nasdaq's
smallcap market until December 28, 2000. From December 28, 2000 to July 3, 2001,
the common stock of the Predecessor Company traded on the OTC Bulletin Board
under the symbol "MTLMQ."

The following table sets forth the high and low bid information for the
common stock of the Predecessor Company for the periods indicated. They reflect
inter-dealer prices, without retail mark-up, mark-down or commission.

The following table sets forth the high and low bid information for our
Common Stock for the periods indicated following our emergence from bankruptcy.
They reflect inter-dealer prices without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.

NINE MONTHS ENDED MARCH 31, 2002
Quarter Ended December 31, 2001............................. $2.75 $1.25
Quarter Ended March 31, 2002................................ 2.50 1.00

As of May 30, 2002, we had approximately 1,300 registered shareholders
based on our transfer agent's records. On May 30, 2002, the closing price per
share of our Common Stock as reported on the Nasdaq OTC Bulletin Board was $4.00
per share.

Neither we nor the Predecessor Company have paid any cash dividends since
August 31, 1995. We presently have no intention of paying dividends in the
foreseeable future and intend to utilize our cash for business operations. In
addition, we are restricted from paying cash dividends under our debt
agreements, including the Credit Agreement and the New Notes. Under the Credit
Agreement, we are precluded from paying dividends without lender approval.

18

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information regarding our equity
compensation plans as of March 31, 2002:

The equity compensation plans approved by security holders represents the
Management Equity Incentive Plan which was approved by a majority of the
Predecessor Company's creditors, who now represent a majority of our
stockholders.

19

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for each of the four
years in the period ended March 31, 2001, the three months ended June 30, 2001
and for the nine months ended March 31, 2002 are derived from our or our
Predecessor Company's audited consolidated financial statements. The information
presented below should be read in conjunction with the consolidated financial
statements and the related notes included in this Report and the section called
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data presented below is not
necessarily indicative of the future results of our operations or financial
performance.

We adopted fresh-start reporting in connection with our emergence from
bankruptcy. Under fresh-start reporting, a new reporting entity is deemed to be
created and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values. For accounting purposes, the fresh-start
adjustments have been recorded in our consolidated financial statement as of
June 30, 2001. Since fresh-start reporting materially changed the amounts
previously recorded in our Predecessor Company's consolidated financial
statements, a black line separates the post-emergence financial data from the
pre-emergence financial data.

- ---------------
(a) We adopted SFAS No. 142 on June 30, 2001. Had our Predecessor Company
adopted SFAS No. 142 as of April 1, 1997, the following proforma amounts
would have been reported (in thousands):

(b) During the third quarter of Fiscal 2001, the Predecessor Company changed its
method of assessing goodwill impairment and recorded a $280.1 million charge
to write-off all unamortized goodwill and intangibles.

(c) Non-cash and non-recurring expenses consist of the following items (in
thousands):

(d) The extraordinary charge incurred in Fiscal 1999 relates to prepayment
penalties, fees, and other costs incurred to refinance debt, net of related
income tax benefit. The extraordinary gain recognized during the three
months ended June 30, 2001 relates to the discharge of indebtedness in
accordance with the Plan.

(e) In Fiscal 1998, the Predecessor Company incurred a $5.6 million non-cash
charge as a result of a beneficial conversion feature of its preferred
stock. Fiscal 2000 includes $1.2 million in special dividends paid in
connection with the redemption of $5.0 million principal amount of Series A
and Series B convertible preferred stock.

(f) Total debt at March 31, 2001 excludes $182.9 million of debt classified
within liabilities subject to compromise.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-K which address
activities, events or developments that the we expect or anticipate will or may
occur in the future, including such things as future acquisitions (including the
amount and nature thereof), business strategy, expansion and growth of our
business and operations, general economic and market conditions and other such
matters are forward-looking statements. Although we believe the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of our knowledge of our business, a number of factors could
cause actual results to differ materially from those expressed in any
forward-looking statements. See "Risk Factors" included in Part I, Item 1 of
this Report for a discussion of the factors that could have a significant impact
on our financial condition or results of operations.

The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to our results of
operations and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
included in Part IV, Item 14 of this Report.

GENERAL

We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 14 states. We enjoy leadership
positions in many major metropolitan markets, including Birmingham, Chicago,
Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix, Salt Lake City,
Toledo and Tucson. We have a 28.5% equity ownership position in Southern
Recycling, L.L.C., the largest scrap metals recycler in the Gulf Coast region.
Our operations consist primarily of the collection and processing of ferrous and
non-ferrous metals. We collect industrial scrap and obsolete scrap, process it
into reusable forms and supply the recycled metals to our customers, including
electric arc furnace mills, integrated steel mills, foundries, secondary
smelters and metal brokers. We believe that we provide one of the most
comprehensive offerings of both ferrous and non-ferrous scrap and other
purchased scrap, such as turnings, cast and broken furnace iron. We also process
non-ferrous metals, including aluminum, copper, stainless steel, brass, titanium
and high temperature alloys, using similar techniques and through application of
our proprietary technologies.

We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. In making acquisitions, we have focused on major
metropolitan markets where prime industrial and obsolete scrap metals
(automobiles, appliances and industrial equipment) are readily available and
from where we believe we can better serve our customer base. In pursuing this
strategy, we have acquired regional platform companies to serve as platforms
into which subsequent acquisitions could be integrated. We believe that through
the integration of our acquired businesses, we have enhanced our competitive
position and profitability of the operations because of broader distribution
channels, improved managerial and financial resources, greater purchasing power
and increased economies of scale.

Demolition projects, in which we recycle the metals that demolition
contractors collect from building and road construction projects also serve as a
source of scrap metals for our recycling operations. In addition, we act as
demolition contractors in certain of our large metropolitan markets in which we
dismantle obsolete machinery, buildings, gasholders and other large structures
containing large quantities of metal and, in the process, collect both the
ferrous and non-ferrous metals from these sources. Our materials handling
expertise and logistics capabilities also afford us unique opportunities to
secure sources of scrap which might not be available to smaller competitors. We
also operate a bus dismantling business combined with a bus replacement parts
business at our Northeast operations.

At certain of our locations, which are adjacent to commercial waterways, we
provide stevedoring services. By providing these services, we increase the
utilization of our equipment and diversify our customer base. While
traditionally most of our stevedoring efforts have been focused at our Port
Newark facility in the Northeast, we have begun to expand these services at our
Midwest locations during the fiscal year ended March 31, 2002.
22

CHAPTER 11 BANKRUPTCY AND PLAN OF REORGANIZATION

On November 20, 2000, we filed voluntary petitions (Case Nos.
00-4303-00-4331 (SLR)) under Chapter 11 of the U.S. Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). During the course of the bankruptcy
proceedings, which we refer to as the "Chapter 11 proceedings" herein, we
operated our businesses as debtors-in-possession. The bankruptcy filing resulted
from a sequence of events stemming primarily from significant operating losses
and decreased liquidity experienced during Fiscal 2001, which culminated in our
Predecessor Company's inability to make a $9 million interest payment on its 10%
Senior Subordinated Notes, due May 2008 (the "Subordinated Notes") on November
15, 2000. Our Predecessor Company's operating results and the resulting decrease
in liquidity were primarily due to unprecedented cycles of declines in prices
and demand for scrap metals exacerbated by high levels of fixed costs associated
with our Predecessor Company's highly leveraged capital structure.

On May 4, 2001, in furtherance of an agreement we had reached with holders
of a significant percentage of our Predecessor Company's pre-petition debt prior
to the initiation of the Chapter 11 proceedings, we filed a Joint and Amended
Plan of Reorganization (the "Plan") pursuant to Chapter 11 of the Bankruptcy
Code. The Plan was confirmed by the Bankruptcy Court and became effective on
June 29, 2001 (the "Effective Date").

As used in this Report, the term "Predecessor Company" refers to the
Company and its operations for periods prior to the Effective Date, while the
term "Reorganized Company" refers to the Company and its operations for periods
after that date.

The following is a summary of certain material provisions of the Plan. The
summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Plan, as filed with the Securities and
Exchange Commission and the Bankruptcy Court. The Plan provided for, among other
things, the following:

- Junior Secured Note Claims -- on June 29, 2001, the holders of the
Predecessor Company's $30 million par amount, 12 3/4% Junior Secured
Notes, due June 2004 (the "Junior Secured Notes"), received new junior
secured notes aggregating $34.0 million (the "New Notes"). The New Notes
bear interest at 12 3/4% and are due on June 15, 2004. The par amount of
the New Notes represents the par amount of the Junior Secured Notes plus
accrued and unpaid interest through June 29, 2001.

- General Trade Claims or "Class 5 Claims" -- the holders of the general
trade claims of the Predecessor Company who elected not to receive common
stock, par value $.01 per share ("Common Stock") of the Reorganized
Company will receive cash payments totaling 30% of their allowed claim.
Such payments will be made, without interest, in four equal annual
installments, with the first installment payable on June 30, 2002. As of
June 29, 2001, we established a payable of $1.3 million representing our
liability recorded in connection with the estimated fair value of the
allowed Class 5 Claims.

- Impaired Unsecured Claims or "Class 6 Claims" -- the holders of the
Subordinated Notes and the holders of the Predecessor Company's general
trade claims who elected (or are otherwise deemed under the Plan to have
elected) on their ballot to be treated as an allowed Class 6 Claim, will
receive a total of 9,900,000 shares of Common Stock. As of March 31,
2002, we have issued 8,946,370 shares of Common Stock to holders of
allowed Class 6 Claims. The initial distribution of Common Stock on
account of Class 6 Claims was based on an estimate of Class 6 Claims. The
estimate of total Class 6 Claims in the initial distribution was
comprised of resolved claims and reserves for unresolved claims. We have
filed objections with the Bankruptcy Court related to unresolved claims.
Additional distributions of Common Stock will be made after the
unresolved claims are either resolved through agreement of the parties or
by a final order of the Bankruptcy Court.

- Preferred Stockholder and Old Common Stockholder or "Equity Claims" -- On
June 29, 2001, the holders of the Predecessor Company's convertible
preferred stock and common stock received their pro-rata share of 100,000
shares of Common Stock and warrants (designated as "Series A Warrants")
23

to purchase 750,000 shares of Common Stock. The Series A Warrants are
immediately exercisable at a price per share equal to the total amount of
liabilities (allowed under Class 6 of the Plan) converted into Common
Stock in accordance with the Plan divided by 10,000,000. We currently
estimate the exercise price of the Series A Warrants to be approximately
$21.50 per share.

- Other Significant Provisions -- as of June 29, 2001, our Board of
Directors consists of the following non-employee directors: Daniel W.
Dienst, John T. DiLacqua, Kevin P. McGuinness and Harold "Skip" Rouster.
Albert A. Cozzi serves as Chairman of the Board of Directors and Chief
Executive Officer.

- A Management Equity Incentive Plan was approved under the Plan and
provides for the issuance of warrants to purchase 1,000,000 shares of
Common Stock at an exercise price of $6.50 per share (designated as
"Series B Warrants") and warrants to purchase 500,000 shares of Common
Stock at an exercise price of $12.00 per share (designated as "Series C
Warrants").

As of June 30, 2001, we adopted fresh-start reporting in accordance with
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code." Under fresh-start reporting, the reorganization fair
value was allocated to our assets; the Predecessor Company's accumulated
deficit, Series B and Series C convertible preferred stock, common stock,
warrants and options, and Subordinated Notes were eliminated; and equity in the
Reorganized Company was recorded.

The reorganization value of $65 million for the equity of the Reorganized
Company was based on the consideration of many factors and various valuation
methods, including a discounted cash flow analysis using projected financial
information, selected publicly traded company market multiples of certain
companies operating businesses viewed to be similar to us, and other applicable
ratios and valuation techniques that we, and our financial advisor during the
Chapter 11 proceedings, believe to be representative of our business and
industry.

The valuation was based upon a number of estimates and assumptions, which
are inherently subject to significant uncertainties and contingencies beyond our
control. Accordingly, there can be no assurance that the valuation will be
realized, and actual results could vary materially. Moreover, the value of our
Common Stock may differ materially from the share value implied in the
reorganization value.

CRITICAL ACCOUNTING POLICIES

The SEC has recently issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies" ("FRR No. 60"),
which suggests that companies provide additional disclosure and commentary on
those accounting policies considered most critical. Our discussion and analysis
of the financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires the use of estimates and judgments that
affect the reported amounts and related disclosures of commitments and
contingencies. We rely on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances to make judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ materially from these estimates.

We believe the following critical accounting policies, among others, affect
the more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Revenue recognition

Revenues for processed product sales are recognized when title passes to
the customer and for services as they are performed. Revenue relating to
brokered sales are recognized upon receipt of the materials by the customer.
Sales adjustments related to price and weight differences and allowances for
uncollectible receivables are accrued against revenues as incurred.

24

Accounts receivable and allowance for uncollectible accounts receivable

Accounts receivable consist primarily of amounts due from customers from
product and brokered sales. The allowance for uncollectible accounts receivable
totaled $2.4 million and $1.6 million at March 31, 2002 and 2001, respectively.
Our determination of the allowance for uncollectible accounts receivable
includes a number of factors, including the age of the accounts, past experience
with accounts, changes in collection patterns and general industry conditions.

As indicated in the section titled "Risk Factors -- The loss of any
significant customers could adversely affect our results of operations or
financial condition," general weakness in the steel and metals sectors over the
last few years has led to bankruptcy filings by many of our customers which have
caused us to recognize additional allowances for uncollectible accounts
receivable. While we believe our allowance for uncollectible accounts receivable
is adequate, changes in economic conditions or any weakness in the steel and
metals industry could adversely impact our future earnings.

Inventory

Our inventories primarily consist of ferrous and non-ferrous scrap metals
and are valued at the lower of average purchased cost or market. Quantities of
inventories are determined based on our inventory systems and are subject to
periodic physical verification using estimation techniques including
observation, weighing and other industry methods. As indicated in the section
titled "Risk Factors -- Prices of commodities we own may be volatile," we are
exposed to risks associated with fluctuations in the market price for both
ferrous and non-ferrous metals, which are at times volatile. We attempt to
mitigate this risk by seeking to rapidly turn our inventories.

Property and equipment held for sale

We continually review our scrap metals operations to evaluate the long term
economic viability of certain of our investments. These reviews result in the
identification of redundant property and equipment which we hold for sale. We
have classified theses assets as held for sale and have recorded them as a
component of current assets as we expect to sell the property and equipment
within one year. These assets held for sale have been taken out of production
and are recorded at their estimated fair value less costs to dispose, if any.
Fair value estimates are based on independent brokers, published used equipment
lists and recent experience with similar property and equipment.

Valuation of long-lived assets and goodwill

We periodically review the carrying value of certain long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be realizable. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset are compared
to the asset's carrying amount to determine if an impairment of such asset is
necessary. The effect of any impairment would be to record an expense equal to
the difference between the fair value of such asset and its carrying value.
During the nine months ended March 31, 2002, we recorded an impairment charge of
$3.1 million related to a scrap metal operation that we have exited and an
impairment charge of $0.8 million related to fixed assets which we abandoned or
otherwise intend to sell or dispose of.

Effective June 30, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which
requires that the goodwill we recorded in connection with fresh-start reporting
be reviewed at least annually for impairment based on the fair value method. At
March 31, 2002, we determined based on current industry information and other
market information, that no impairment existed.

Self-Insured Reserves

We are self-insured for health insurance plans offered to many of our
employees. Our exposure to health insurance claims is protected by a stop-loss
insurance policy. We record a reserve for the estimated cost of

25

incurred but not reported ("IBNR") claims. Our estimate is based on a lag
estimate calculated by our insurance plan administrator and our historical
claims experience. The lag accrual that we establish is based on recent actual
claims paid.

Contingencies

We accrue reserves for estimated liabilities, which include environmental
remediation and potential legal claims. A loss contingency is accrued when our
assessment indicates that it is probable that a liability has been incurred and
the amount of the liability can be reasonably estimated. Our estimates are based
upon currently available facts and presently enacted laws and regulations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new information.

The above listing is not intended to be a comprehensive list of all of our
accounting policies. Please refer to our audited consolidated financial
statements and notes thereto which begin on page F-1 of this Report and contain
accounting policies and other disclosures required by generally accepted
accounting principles.

RESULTS OF OPERATIONS

Fiscal 2002 compared to Fiscal 2001

In order to provide a meaningful basis of comparing Fiscal 2002 to Fiscal
2001 for purposes of the following tables and discussion, the operating results
of the Reorganized Company for the nine months ended March 31, 2002, have been
combined with the operating results of the Predecessor Company for three months
ended June 30, 2001 (collectively referred to as "Fiscal 2002") and are compared
to the year ended March 31, 2001 ("Fiscal 2001"). The combining of reorganized
and predecessor periods does not result in a presentation that is in accordance
with generally accepted accounting principles, but we believe such results will
provide meaningful comparisons for net sales, gross profit and general and
administrative expenses.

Our results from operations for Fiscal 2002 were impacted much of the year
by the weakening economy. However, since January 2002, our ferrous operations
improved as a result of improving economic conditions in the U.S., slowing of
imports of steel into the U.S. and firming of export markets for scrap. Our
non-ferrous operations, including stainless steel, wire chopping and the
high-temperature alloy businesses, did not experience a recovery during Fiscal
2002.

26

Consolidated net sales for Fiscal 2002 and for Fiscal 2001 in broad product
categories were as follows ($ in millions):

Consolidated net sales decreased by $135.5 million (17.7%) to $631.1
million in Fiscal 2002 compared to consolidated net sales of $766.6 million in
Fiscal 2001. The decrease in consolidated net sales was primarily due to lower
volumes of products shipped coupled with lower average selling prices. Through
December 2001, scrap metals prices were impacted by the weakening economy
contributing to lower industrial output that negatively impacted both supply and
demand for scrap metals. However, since January 2002, ferrous scrap metals
prices and volumes have increased which contributed to a profitable quarter for
the three months ended March 31, 2002.

Ferrous sales decreased by $47.6 million (11.3%) to $374.4 million in
Fiscal 2002 compared to ferrous sales of $422.0 million in Fiscal 2001. The
decrease was mainly a result of lower shipments and lower average sales prices
realized during the nine months ended December 31, 2001. During the three months
ended March 31, 2002, ferrous sales improved as a result of increased volume and
prices. Since January 2002, we have seen improvement in domestic demand for
ferrous scrap and export opportunities are also available.

Non-ferrous sales decreased by $76.1 million (27.5%) to $200.3 million in
Fiscal 2002 compared to non-ferrous sales of $276.4 million in Fiscal 2001. The
decrease was primarily due to lower unit shipments and lower average selling
prices. Since November 2001, demand from the aerospace industry has declined
substantially which resulted in lower average selling prices and units sales for
non-ferrous metals including titanium and high-temperature alloys.

Brokerage ferrous sales increased by $4.4 million (13.7%) to $36.6 million
in Fiscal 2002 compared to brokerage ferrous sales of $32.2 million in Fiscal
2001. The increase was a result of more tons brokered (13%) during Fiscal 2002.
During Fiscal 2001, brokerage transactions were limited by the effects of our
bankruptcy. During the three months ended March 31, 2002, our brokerage ferrous
sales were $10.9 million, an increase of $4 million and $7 million from the
three months ended December 31, 2001 and the three months ended March 31, 2001,
respectively. The average selling price for brokered metals is significantly
affected by the product mix, such as prompt industrial grades versus obsolete
grades, which can vary significantly between periods. Prompt industrial grades
of scrap are generally associated with higher unit prices.

Brokerage non-ferrous sales decreased by $10.9 million (63.7%) to $6.2
million in Fiscal 2002 compared to brokerage non-ferrous sales of $17.1 million
in Fiscal 2001. Brokerage non-ferrous volume declined by 21.5 million pounds and
average realized sales prices declined by $0.08 per pound during Fiscal 2002
compared to Fiscal 2001. Margins associated with brokered non-ferrous metals are
narrow so variations in this product category are not as significant to us as
variations in other product categories.

Gross profit was $72.7 million (11.5% of sales) in Fiscal 2002 compared to
gross profit of $61.9 million (8.1% of sales) in Fiscal 2001. Gross profit as a
percentage of sales in Fiscal 2002 reflects significant improvement from Fiscal
2001 as a result of better buying practices and reductions in operating
expenses.

General and administrative expenses were $45.9 million (7.3% of sales) in
Fiscal 2002 compared to general and administrative expenses of $56.3 million
(7.3% of sales) in Fiscal 2001. General and administrative

27

expenses have declined by over 18% during Fiscal 2002 from Fiscal 2001 due to
reductions in headcount and other cost containment initiatives implemented
during Fiscal 2002.

Depreciation and amortization expense was $18.4 million (2.9% of sales) in
Fiscal 2002 compared to depreciation and amortization expense of $23.3 million
(3.0% of sales) in Fiscal 2001. The decrease in depreciation and amortization
expense was the result of the goodwill impairment charge recorded as of October
1, 2000 which resulted in the elimination of goodwill amortization expense for
periods after October 1, 2000. Prior to the goodwill impairment charge, goodwill
amortization was approximately $8 million annually. Depreciation expense has
remained relatively constant as we operated with the same installed base of
equipment during Fiscal 2002 and Fiscal 2001.

In Fiscal 2001, the Predecessor Company changed its method of accounting
for assessing whether an impairment existed in the recorded amount of acquired
business unit goodwill and other intangible assets from an undiscounted cash
flow method to a fair value method. As a result of applying the fair value
method, the Predecessor Company recorded a goodwill impairment charge of $280.1
million in Fiscal 2001 (see Note 1 to the consolidated financial statements
included in Part IV, Item 14 of this Report).

Non-cash and non-recurring expense was $5.9 million in Fiscal 2002. We
recorded an impairment charge of $3.1 million related to one of our operations
which we are in the process of exiting and an impairment charge of $2.8 million
related to fixed assets which are to be sold or otherwise abandoned. Non-cash
and non-recurring expense was $6.4 million in Fiscal 2001, which primarily
represents asset impairments (see Note 4 to the consolidated financial
statements included in Part IV, Item 14 of this Report).

Interest expense was $14.6 million (2.3% of sales) in Fiscal 2002 compared
to interest expense of $34.2 million (4.4% of sales) in Fiscal 2001. The
decrease in interest expense was a result of lower borrowings under credit
facilities, lower interest rates on borrowings under credit facilities, and the
elimination of interest expense related to unsecured debt after the Petition
Date, including but not limited to interest on the Subordinated Notes. Interest
expense related to the Subordinated Notes was $1.5 million per month prior to
the Petition Date. Borrowings on credit facilities are at variable rates tied to
the prime rate of interest, which has declined by 4.75% per annum since January
2001.

Reorganization costs mainly represent professional fees, liabilities for
rejected contracts and settlements, fresh-start adjustments and other expenses
associated with the Chapter 11 proceedings (see Note 2 to the consolidated
financial statements included in Part IV, Item 14 of this Report). We will
continue to incur additional reorganization costs until all of the claims
arising from the Chapter 11 proceedings have been adjudicated. The additional
costs are not expected to be significant.

As a result of our past losses and uncertainties regarding our ability to
generate taxable income, we have determined that it is more likely than not that
we will not realize recorded tax benefits. As a result, we have fully reserved
our net deferred tax assets as of March 31, 2002. In Fiscal 2001, we recorded an
income tax expense of $8.3 million during the six months ended September 30,
2000 in order to provide a valuation allowance against net deferred tax assets.

On April 1, 2001, we adopted SFAS No. 133, "Accounting for Derivatives and
Hedges" (as amended). The cumulative effect of adopting SFAS No. 133 resulted in
an after-tax decrease in net earnings of $0.4 million.

We recognized an extraordinary gain of $145.7 million related to the
cancellation of our Subordinated Notes and other unsecured claims in the Chapter
11 proceedings (see Note 3 to the consolidated financial statements included in
Part IV, Item 14 of this Report).

Net income was $122.5 million in Fiscal 2002 compared to a net loss of
$365.6 million in Fiscal 2001. The improvement was a result of an extraordinary
gain associated with cancellation of indebtedness, lower interest and general
and administrative expenses, and the elimination of goodwill amortization.

28

Fiscal 2001 compared to Fiscal 2000

Our Predecessor Company's results of operations for Fiscal 2001 were
negatively impacted by the adverse market conditions prevalent in the steel and
scrap metals sectors during the year. These market conditions were characterized
by weak demand for scrap metals combined with an abundant supply causing prices
for scrap metals to decline precipitously. This decline resulted in part from
the increase in scrap imports flowing into the United States. During this period
of adverse market conditions, our sales were significantly lower than expected.
Accordingly, we were unable to implement our strategy of maximizing inventory
turns, resulting in losses associated with holding commodity inventories during
declining markets. Additionally, we were unable to reduce operating expenses
commensurately with volume which precluded us from covering fixed expenses and
caused losses. Weak markets conditions in the steel sector during Fiscal 2001
also led to bankruptcy filings by certain of our customers including, but not
limited to, LTV Steel Company, Inc. and Northwestern Steel and Wire Company.
Bankruptcies of steel customers resulted in uncollected receivables of
approximately $4.9 million during Fiscal 2001.

Consolidated net sales for Fiscal 2001 and for the year ended March 31,
2000 ("Fiscal 2000") in broad product categories were as follows ($ in
millions):

Consolidated net sales decreased by $148.5 million (16.2%) to $766.6
million in Fiscal 2001 compared with consolidated net sales of $915.1 million in
Fiscal 2000. The decrease in consolidated net sales was primarily due to lower
volumes of ferrous and non-ferrous products sold during the period and lower
average realized sales prices for ferrous commodities.

Ferrous sales decreased by $60.6 million (12.6%) in Fiscal 2001 compared to
ferrous sales in Fiscal 2000. During Fiscal 2001, revenues were negatively
impacted by deteriorating conditions in the scrap metals and steel industries
which resulted in lower demand for ferrous metals and lower average realized
sales prices which declined by $7 per ton for processed ferrous metals. Ferrous
sales were also reduced by $3.5 million of sales adjustments recorded during
December 2000 as a result of bankruptcy filings by two domestic steel companies.

Non-ferrous sales decreased by $12.2 million (4.2%) in Fiscal 2001 compared
to non-ferrous sales in Fiscal 2000. The decrease was primarily due to unit
sales declining by 55.7 million pounds, offset by a $.03 per pound increase in
average realized sales prices. Our average selling price for the non-ferrous
product category is impacted by market conditions and the product mix of
non-ferrous metals sold. The majority of our non-ferrous sales are derived from
copper, aluminum and stainless steel.

Brokerage ferrous sales decreased by $71.4 million (68.9%) in Fiscal 2001
compared to brokerage ferrous sales in Fiscal 2000. The decrease was primarily
due to a contraction in our brokerage business resulting from credit concerns in
trading markets of our brokerage customers.

Brokerage non-ferrous sales decreased by $3.4 million (16.6%) in Fiscal
2001 compared to brokerage non-ferrous sales in Fiscal 2000. Although average
realized sales prices for brokered non-ferrous products were $0.16 per pound
higher in Fiscal 2001 compared to Fiscal 2000, the volume of non-ferrous metals
brokered decreased by 34.3 million pounds in Fiscal 2001.

29

Gross profit was $61.9 million (8.1% of sales) in Fiscal 2001 compared to
gross profit of $110.0 million (12.0% of sales ) in Fiscal 2000. The decrease in
consolidated gross profit reflects lower sales, increased operating expenses
compared with Fiscal 2000 and weakening market conditions for scrap metals. The
decreases in scrap metals prices in Fiscal 2001 also resulted in the recognition
of inventory losses further reducing gross margins.

General and administrative expenses were $56.3 million (7.3% of sales) in
Fiscal 2001 compared to general and administrative expenses of $55.0 million
(6.0% of sales) in Fiscal 2000. During Fiscal 2001, we took actions to reduce
personnel-related costs and began to realize the benefit of these cost reduction
initiatives during the fourth quarter of Fiscal 2001. The overall increase in
general and administrative expenses in Fiscal 2001 was primarily due to higher
health insurance costs which offset declines in other categories of
administrative expenses.

Depreciation and amortization expense was $23.3 million (3.0% of sales) in
Fiscal 2001 compared to depreciation and amortization expense of $27.2 million
(3.0% of sales) in Fiscal 2000. The decrease in depreciation and amortization
expense was the result of the goodwill impairment charge recorded as of October
1, 2000 which resulted in the elimination of goodwill amortization expense for
periods after October 1, 2000.

On October 1, 2000, the Predecessor Company changed its method of
accounting for assessing whether an impairment existed in the recorded amount of
acquired business unit goodwill and other intangible assets from an undiscounted
cash flow method to a fair value method. As a result of applying the fair value
method, the Predecessor Company recorded a goodwill impairment charge of $280.1
million in Fiscal 2001 (see Note 1 to the consolidated financial statements
included in Part IV, Item 14 of this Report).

Non-cash and non-recurring expense was $6.4 million in Fiscal 2001. During
Fiscal 2001, $5.8 million of non-cash charges were recorded for asset
impairments including an impairment charge of $2.6 million relating to a note
receivable issued in connection with the sale of our former Superior Forge
subsidiary and $3.2 million relating to fixed asset impairments in scrap metals
yards which we closed during the fourth quarter of Fiscal 2001. During Fiscal
2000, $5.0 million of non-cash and non-recurring expense was recorded to reflect
termination and separation agreements with two of our former officers (see Note
4 to the consolidated financial statements included in Part IV, Item 14 of this
Report).

Loss from joint ventures was $3.5 million in Fiscal 2001 compared to income
from joint ventures of $0.4 million in Fiscal 2000. The losses reflect our 28.5%
share of losses incurred by Southern Recycling as a result of weakening market
conditions for scrap metals. Additionally, as a result of these losses and
continued adverse scrap industry conditions, we concluded that our investment
was impaired and recorded a charge of $1.7 million to loss from joint ventures
to reduce the carrying value of our investment in Southern Recycling to zero.

Interest expense was $34.2 million (4.5% of sales) in Fiscal 2001 compared
to interest expense of $38.0 million (4.2% of sales) in Fiscal 2000. The
decrease in interest expense in Fiscal 2001 was a result of lower borrowings
under credit facilities and interest expense not accrued for unsecured debt
after the Petition Date.

Reorganization costs recognized in Fiscal 2001 represent professional fees
and other expenses associated with the Chapter 11 proceedings and the write-off
of deferred financing costs (see Note 2 to the consolidated financial statements
included in Part IV, Item 14 of this Report).

As a result of uncertainties regarding our ability to realize previously
recognized tax benefits following the initiation of the Chapter 11 proceedings,
we recorded an income tax expense of $8.3 million during the six months ended
September 30, 2000 in order to provide a valuation allowance against net
deferred tax assets. We fully reserved any tax benefits associated with our
operating losses.

Net loss, after preferred stock dividends, was $365.6 million ($6.18 per
share) in Fiscal 2001 compared to a net loss, after preferred stock dividends,
of $13.9 million ($0.26 per share) in Fiscal 2000. The increase in the net loss
was primarily due to the goodwill impairment charge recorded in Fiscal 2001,
expenses associated

30

with the Chapter 11 proceedings, as well as higher operating losses incurred as
a result of deteriorating conditions in the scrap metals industry in Fiscal
2001.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital and Cash Flows

Our accounts receivable balances decreased from $79.6 million at March 31,
2001 to $61.5 million at March 31, 2002 principally due to improved collections.

Our accounts payable balances increased from $37.9 million at March 31,
2001 to $42.9 million at March 31, 2002. The increase in accounts payable
resulted principally from improvements in credit terms received from trade
suppliers.

Inventory levels can vary significantly among our operations and with
changes in market conditions. Our inventories consist of the following
categories (in thousands):

Ferrous inventory dollars decreased due to lower units of ferrous metals on
hand at March 31, 2002 compared to March 31, 2001. Non-ferrous inventory
decreased as a result of lower units of non-ferrous materials on hand coupled
with lower average purchase prices at March 31, 2002 compared to March 31, 2001.

During Fiscal 2002, we generated $31.2 million of cash from operating
activities. During this period, our operations generated $10.2 million of cash,
which was supplemented by cash flows in changes in working capital including
accounts receivable, inventories and accounts payable that generated cash flows
of $13.8 million, $2.5 million and $1.3 million, respectively.

During Fiscal 2002, we used $3.3 million of cash for investing activities.
Purchases of property and equipment were $4.7 million, while we generated $1.7
million of cash from the sale of redundant fixed assets.

During Fiscal 2002, our financing activities used $28.5 million of cash.
Cash generated from operations were used to repay borrowings under the credit
facilities.

Indebtedness

As a result of the consummation of the Plan, we substantially reduced the
amount of our overall indebtedness. As of March 31, 2002, our total indebtedness
was approximately $134 million. Although the Plan resulted in a reduction in
debt, further improvements in our liquidity position will depend on the success
of initiatives we are undertaking to reduce operating expenses and the effects
on our liquidity of changes in the market conditions in the scrap metals
industry. Our uses of capital are expected to include working capital for
operating expenses and satisfaction of current liabilities, capital
expenditures, payment of reorganization expenses, and interest and other
payments on outstanding borrowings.

On the Effective Date, our $200 million debtor-in-possession credit
facility was replaced by a $150 million revolving credit and letter of credit
facility (the "Credit Agreement"). The Credit Agreement was entered into by
Bankers Trust Company, as agent for the lenders thereunder, the lenders a party
thereto and us and expires on June 29, 2003. The Credit Agreement is available
to fund working capital needs and for general corporate purposes.

31

Borrowings under the Credit Agreement are subject to certain borrowing base
limitations based upon a formula equal to 85% of eligible accounts receivable,
the lesser of $65 million or 70% of eligible inventory, and a fixed asset
sublimit of $33.9 million as of March 31, 2002, which amortizes by $2.4 million
on a quarterly basis and under certain other conditions. In addition, as of
March 31, 2002, approximately $11.6 million of supplemental availability is
provided under the Credit Agreement, subject to periodic amortization of $1.2
million each quarter and other reductions. A security interest in substantially
all of our assets and properties, including pledges of the capital stock of our
subsidiaries, has been granted to the agent under the new credit facility to
secure our obligations under the Credit Agreement. The Credit Agreement provides
us with the option of borrowing based either on the prime rate (as specified by
Deutsche Bank AG, New York Branch) or the London Interbank Offered Rate
("LIBOR") plus a margin. Pursuant to the Credit Agreement, we pay a fee of .375%
on the undrawn portion of the credit facility. In consideration for the Credit
Agreement, we paid a closing fee of $1 million and may be required to pay a $2
million facility fee on June 29, 2002, unless we are able to meet certain
financial objectives. We currently expect that we will be required to pay the $2
million facility fee on June 29, 2002.

The Credit Agreement requires us to meet certain financial tests, including
an interest coverage ratio and leverage ratio (as defined in the Credit
Agreement) as follows:

The Credit Agreement limits our capital expenditures to $16 million each
fiscal year. The Credit Agreement also contains restrictions which, among other
things, limit our ability to (i) incur additional indebtedness; (ii) pay
dividends; (iii) enter into transactions with affiliates; (iv) enter into
certain asset sales; (v) engage in certain acquisitions, investments, mergers
and consolidations; (vi) prepay certain other indebtedness; (vii) create liens
and encumbrances on our assets and (viii) other matters customarily restricted
in such agreements. We were in compliance with all financial covenants as of
March 31, 2002. As of May 30, 2002, we had outstanding borrowings of
approximately $102 million under the Credit Agreement and undrawn availability
of approximately $18 million.

Our ability to meet financial ratios and tests in the future may be
affected by events beyond our control, including fluctuations in operating cash
flows and working capital, and the timing of fixed asset sales. While we
currently expect to be in compliance with the covenants and satisfy the
financial ratios and tests in the future, there can be no assurance that we will
meet such financial ratios and tests or that we will be able to obtain future
amendments or waivers to the Credit Agreement, if so needed, to avoid a default.
In the event of default, the lenders could elect to not make loans to us and
declare all amounts borrowed under the Credit Agreement to be due and payable.

Pursuant to our Plan, the Junior Secured Notes were exchanged for New
Notes, having an outstanding principal balance of $34.0 million. The New Notes
mature on June 15, 2004 and bear interest at the rate of 12 3/4% per annum.
Interest on the New Notes is payable semi-annually during June and December of
each year. The New Notes are our senior obligations and rank equally in right of
payment to all of our unsubordinated debt, including our indebtedness under the
Credit Agreement, and senior in right of payment to all of our subordinated
debt. A second priority lien on substantially all of our personal property,
plant (to the extent it constitutes fixtures) and equipment has been pledged as
collateral against the New Notes.

The New Notes are redeemable at our option (in multiples of $10 million) at
a redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest. The New Notes are redeemable at the option of the holders of
such notes at a repurchase price of 101% of the principal amount thereof, plus
accrued and unpaid interest, in the event we experience a change of control (as
defined in the indenture governing the

32

New Notes). We are required to redeem all or a portion of the New Notes at a
repurchase price of 100% of the principal amount thereof, plus accrued and
unpaid interest, in the event we make certain asset sales.

The indenture governing the Junior Secured Notes was amended and restated
in accordance with our Plan in order to reflect, among other things, the
increase in the principal amount of the New Notes. The Indenture, as amended,
contains restrictions including limits on, among other things, our ability to:
(i) incur additional indebtedness; (ii) pay dividends or distributions on our
capital stock or repurchase our capital stock; (iii) issue stock of
subsidiaries; (iv) make certain investments; (v) create liens on our assets;
(vi) enter into transactions with affiliates; (vii) transfer or consolidate with
another company; and (viii) transfer and sell assets or enter into sale and
leaseback transactions.

Future Capital Requirements

Our future cash needs will be driven by working capital requirements
(including interest payments on the New Notes), planned capital expenditures and
acquisition objectives, should attractive acquisition opportunities present
themselves. While we have no pending acquisitions, we may choose to consider
selective opportunities for "tuck-in" acquisitions in Fiscal 2003. Capital
expenditures were approximately $5 million in Fiscal 2002 representing
approximately 25% of depreciation expense in Fiscal 2002. Capital expenditures
are planned to be approximately $10 million in Fiscal 2003 reflecting primarily
replacement investments. On June 15, 2002, we are required to make a $2.2
million coupon payment on the New Notes. On June 29, 2002, we expect that we
will be required to pay a facility fee of $2 million under the terms of the
Credit Agreement. We do not expect such capital expenditures nor interest
payments and fees to have a material adverse effect on our liquidity. We expect
to fund our working capital needs, interest payments and capital expenditures
with cash generated from operations, supplemented by undrawn borrowing
availability under the Credit Agreement.

We believe these sources of capital will be sufficient to fund planned
capital expenditures, interest payments and working capital requirements for the
foreseeable future, although there can be no assurance that this will be the
case. In addition, the instruments governing the Credit Agreement and the New
Notes will limit our ability to incur additional debt to fund significant
acquisition or expansion opportunities unless and until our results of
operations show significant improvement for four consecutive quarters.

Our Credit Agreement expires on June 29, 2003. Although we expect to be
able to renew the Credit Agreement prior to June 2003, there is no assurance
that this will be the case. If we cannot renew our Credit Agreement on favorable
terms, we may be required to seek alternative financing for our working capital
needs. The terms on which we may be able to obtain replacement financing may not
be as favorable as under the Credit Agreement and may cause dilution to holders
of our Common Stock.

The Predecessor Company historically financed a part of its operations
through the issuance of common stock or convertible preferred stock. Since we
recently emerged from bankruptcy and a market for our Common Stock has
developed, we may issue equity in the future to finance our operations. The
issuance of equity would dilute the ownership of the existing shareholders.

Contractual Obligations and Commercial Commitments

We have assumed various financial obligations and commitments in the normal
course of our operations and financing activities. Financial obligations are
considered to represent known future cash payments that we are required to make
under existing contractual arrangements, such as debt and lease agreements. The

33

following table represents the scheduled maturities of our long-term contractual
obligations as of March 31, 2002 (in thousands):

We also enter into letters of credit in the ordinary course of operating
and financing activities. As of March 31, 2002, we had outstanding letters of
credit of $3.2 million which expire in Fiscal 2003.

In November 2001, we amended our lease agreement for real property on which
we operate a scrap metals recycling facility in Houston, Texas. The lease
agreement expires on October 31, 2006 and provides for, among other things, an
option for the lessor to sell the real property to us beginning on the 22nd
month of the lease. We also have an option to purchase the real property
beginning on the 22nd month of the lease. The purchase price for the real
property is based on the month in which the option is exercised as follows:

We also have an option to purchase real property in Tucson, Arizona, where
we currently operate a scrap metals recycling facility, for $1.1 million. The
purchase option must be exercised before December 31, 2002. If we choose not to
exercise the option, we will forfeit a $0.2 million deposit.

RELATED PARTY TRANSACTIONS

In the Chapter 11 proceedings, the Official Committee of Unsecured
Creditors was represented by CIBC World Markets Corp. ("CIBC"), a company in
which Daniel W. Dienst, now a director of our company, is a managing director.
Professional fees paid to CIBC during Fiscal 2001 and Fiscal 2002 were
approximately $0.4 million and $2.6 million, respectively. Fees paid to CIBC
during Fiscal 2002 include restructuring success fees of $2.1 million, paid as
follows: i) $1.05 million in cash and ii) $1.05 million paid through the
issuance of 161,538 shares of Common Stock (at $6.50 per share).

We utilize legal services from Mayer, Brown, Rowe and Maw, a firm in which
David A. Carpenter, our former General Counsel, is a partner. Fees paid to
Mayer, Brown, Rowe and Maw during Fiscal 2002 were approximately $1.2 million.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements: SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the use of the pooling-of-interests method. SFAS No. 142
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. The carrying value of such
assets will be evaluated for impairment on an annual basis using the fair value
method. Identifiable intangible assets with definite lives will continue to be
amortized over their useful lives and reviewed periodically for impairment.

34

In accordance with Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and the
application of fresh-start reporting, we adopted SFAS No. 141 and SFAS No. 142
as of June 30, 2001. The adoption of SFAS No. 141 had no impact on the
consolidated financial statements as we had no recorded goodwill or intangible
assets at adoption. The adoption of SFAS No. 142 resulted in the classification
of the reorganization intangible recognized in fresh-start reporting as goodwill
with an indefinite life. As a result, goodwill of $15.5 million is not being
amortized, but is being reviewed annually for impairment. Our assessment
indicated that no impairment existed at March 31, 2002.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 significantly changes the
criteria that would have to be met to classify an asset as held-for-sale,
although it retains many of the fundamental recognition and measurement
provisions of SFAS No. 121. We adopted SFAS No. 144 as of April 1, 2002 and the
adoption did not have a material impact on our consolidated financial position
or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial risk resulting from fluctuations in interest
rates and commodity prices. We seek to minimize these risks through regular
operating and financing activities and, where appropriate, through use of
derivative financial instruments. Our use of derivative financial instruments is
limited and related solely to hedges of certain non-ferrous inventory positions
and purchase and sales commitments.

COMMODITY PRICE RISK

We are exposed to risks associated with fluctuations in the market price
for both ferrous and non-ferrous metals which are at times volatile. See the
discussion under the heading "Risk Factors -- The metals recycling industry is
highly cyclical," included in Part I, Item 1 of this Report. We attempt to
mitigate this risk by seeking to turn our inventories quickly instead of holding
inventories in speculation of higher commodity prices.

We employ various strategies to mitigate the risk of fluctuations in the
price of non-ferrous metals. None of the instruments employed by us to hedge
these risks are entered into for trading purposes or speculation, but instead
are effected as hedges of underlying physical transactions and commitments. All
hedges are recorded at fair value with adjustments to the fair values recorded
in the statement of operations.

INTEREST RATE RISK

We are exposed to interest rate risk on our long-term fixed interest rate
indebtedness and on our floating rate borrowings. As of March 31, 2002,
long-term fixed borrowings consisted mainly of $34.0 million of New Notes which
bear interest at a fixed rate of 12 3/4%. Changes in interest rates could cause
the fair market value of indebtedness with a fixed interest rate to increase or
decrease, and thus increase or decrease the amount required to refinance the
indebtedness. As of March 31, 2002, variable rate borrowings mainly consisted of
outstanding borrowings of $97 million under our Credit Agreement. Our borrowings
on our Credit Agreement bear interest on either the prime rate of interest or
LIBOR plus a margin. Any increase in either base rate would lead to higher
interest expense. We do not have any interest rate swaps or caps in place which
would mitigate our exposure to fluctuations in the interest rate on this
indebtedness.

35

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of futures contracts and
long-term debt were as follows at March 31, (in thousands):

Schedules not listed above have been omitted because they are not required
or they are inapplicable.

(3) EXHIBITS:

A list of the exhibits included as part of this Form 10-K is set forth in
the Exhibit Index that immediately precedes such exhibits, which is incorporated
herein by reference.

(b) REPORTS ON FORM 8-K:

We did not file any reports on Form 8-K during the fourth quarter of Fiscal
2002.

38

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois
on June 4, 2002.

METAL MANAGEMENT, INC.

By: /s/ ALBERT A. COZZI
------------------------------------
Albert A. Cozzi
Chairman of the Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 4, 2002.

39

METAL MANAGEMENT, INC.
EXHIBIT INDEX

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Metal Management, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 38 present fairly, in all material
respects, the financial position of Metal Management, Inc. and its subsidiaries
at March 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 38 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 1, 2 and 3 to the consolidated financial statements,
the Company emerged from Chapter 11 bankruptcy on June 29, 2001. Effective June
30, 2001, the Company changed its basis of financial statement presentation to
reflect the adoption of "fresh start" accounting.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for derivatives effective April 1, 2001
and its method of accounting for goodwill and intangible assets effective June
30, 2001.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for assessing whether an impairment
exists in the recorded amount of acquired business unit goodwill and other
intangible assets in 2001.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
June 5, 2002

F-1

METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

See accompanying notes to consolidated financial statements
F-2

METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

See accompanying notes to consolidated financial statements

F-3

METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

See accompanying notes to consolidated financial statements
F-4

METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)

See accompanying notes to consolidated financial statements

F-5

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS
Metal Management, Inc., a Delaware corporation, and its wholly-owned
subsidiaries (the "Company") are principally engaged in the business of
collecting and processing ferrous and non-ferrous metals. The Company collects
industrial scrap and obsolete scrap, processes it into reusable forms, and
supplies the recycled metals to its customers, including electric arc furnace
mills, integrated steel mills, foundries, secondary smelters and metals brokers.
These services are provided through the Company's recycling facilities located
in 14 states. The Company's ferrous products primarily include shredded,
sheared, cold briquetted, bundled scrap, turnings and broken furnace iron. The
Company also processes non-ferrous metals, including aluminum, stainless steel,
copper, brass, titanium and high-temperature alloys, using similar techniques
and through application of certain of the Company's proprietary technologies.
Prior to April 1996, the Company was engaged in the business of designing,
manufacturing and marketing color printers and related color printer consumable
products (see Note 5 -- Discontinued Operations).

BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). All significant intercompany accounts, transactions and profits have
been eliminated in consolidation. Investments in less than majority-owned
companies (principally corporate joint ventures), which engage in ferrous and
non-ferrous scrap metal recycling, are accounted for using the equity method.

As discussed in Note 2 -- Reorganization Under Chapter 11, on November 20,
2000 (the "Petition Date"), the Company filed voluntary petitions (Case Nos.
00-4303 -- 00-4331 (SLR)) commencing cases under Chapter 11 of the U.S.
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). On June 29, 2001, the
Company emerged from Chapter 11 bankruptcy.

As a result of the Company's emergence from Chapter 11 bankruptcy and the
application of fresh-start reporting (see Note 3 -- Fresh-Start Reporting),
consolidated financial statements for the Company for the periods subsequent to
June 30, 2001, following the effective date of the Company's plan of
reorganization in the bankruptcy proceedings, are referred to as the
"Reorganized Company" and are not comparable to those for the periods prior to
June 30, 2001, which are referred to as the "Predecessor Company." A black line
has been drawn in the audited consolidated financial statements to distinguish,
for accounting purposes, the periods associated with the Reorganized Company and
the Predecessor Company. Aside from the effects of fresh-start reporting and new
accounting pronouncements adopted as of the effective date of the plan of
reorganization, the Reorganized Company follows the same accounting policies as
the Predecessor Company.

RECLASSIFICATIONS
Certain prior year financial information has been reclassified to conform
to the current year presentation. Such reclassifications had no material effect
on the previously reported consolidated balance sheet, results of operations or
cash flows of the Company.

USES OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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 these
estimates.

F-6

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION
Revenues for processed product sales are recognized when title passes to
the customer and for services as they are performed. Revenue relating to
brokered sales are recognized upon receipt of the materials by the customer.
Sales adjustments related to price and weight differences and allowances for
uncollectible receivables are accrued against revenues as incurred.

SHIPPING AND HANDLING REVENUES AND COSTS
The Company classifies shipping and handling charges billed to customers as
revenue. The Company classifies shipping and handling costs incurred as a
component of cost of sales.

DERIVATIVES
Effective April 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedges"
(as amended). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at fair value.

The Company utilizes futures and forward contracts to hedge its net
position in certain non-ferrous metals and does not use futures and forward
contracts for trading purposes. The Company has classified its investment in
these contracts as speculative under the provisions of SFAS No. 133. As a
result, the Company marked its outstanding futures and forwards contracts to
market at April 1, 2001 and recognizes the changes in fair values of its futures
and forwards contracts in the statement of operations. The cumulative effect of
adopting SFAS No. 133 resulted in an after-tax reduction in net earnings of $0.4
million recorded as of April 1, 2001.

SEGMENT REPORTING
The Company currently operates in one reportable segment, the scrap metal
recycling industry, as determined in accordance with SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information."

CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid investments
with original maturities of three months or less. The carrying amount of cash
and cash equivalents approximates fair value.

ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from customers on product,
broker and other sales. The carrying amount of accounts receivable approximates
fair value. Reserves for uncollectible accounts were approximately $2.4 million
and $1.6 million at March 31, 2002 and 2001, respectively.

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Major renewals and improvements are capitalized, while repairs and maintenance
costs are expensed as incurred. Depreciation is determined for financial
reporting purposes using the straight-line method over the following estimated
useful lives: 10 to 40 years for buildings and improvements, 3 to 15 years for
operating machinery and equipment, 2 to 10 years for furniture, fixtures and
computer equipment and 3 to 10 years for automobiles and trucks. When assets are
sold or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is recorded in the statement of
operations.

PROPERTY AND EQUIPMENT HELD FOR SALE
The Company continually reviews its scrap metals operations to evaluate the
long term economic viability of certain of its investments in property and
equipment. These reviews result in the identification of redundant property and
equipment which the Company holds for sale. The Company has classified theses
assets as held for sale and, in the aggregate, has reported the amount as a
component of current assets as the Company
F-7

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expects to sell the property and equipment within one year. The assets are
recorded at their estimated fair value less costs to dispose of, if any.

GOODWILL
In July 2001, the Financial Accounting Standards Board ("FASB") issued two
new pronouncements: SFAS No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the
purchase method of accounting for business combinations initiated after June 30,
2001 and eliminates the use of the pooling-of-interests method. SFAS No. 142
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. The carrying value of such
assets will be evaluated for impairment on an annual basis using the fair value
method. Identifiable intangible assets with definite lives will continue to be
amortized over their useful lives and reviewed periodically for impairment.

In accordance with Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") and the
application of fresh-start reporting, the Company adopted SFAS No. 141 and SFAS
No. 142 as of June 30, 2001. The adoption of SFAS No. 141 had no impact on the
consolidated financial statements as the Company had no recorded goodwill or
intangible assets at adoption. The adoption of SFAS No. 142 resulted in the
classification of the reorganization intangible recognized in fresh-start
reporting (see Note 3 -- Fresh-Start Reporting) as goodwill with an indefinite
life. As a result, goodwill of $15.5 million is not being amortized. At March
31, 2002, the Company determined that its goodwill is not impaired.

The following unaudited pro forma information presents a summary of the
consolidated statements of operations for the years ended March 31, 2001 and
2000 assuming that SFAS No. 142 was adopted on April 1, 1999. The adoption of
SFAS No. 142 did not impact the Company's consolidated statement of operations
for the three months ended June 30, 2001 as no goodwill amortization expense was
previously recognized (in thousands, except per share amounts):

Goodwill of the Predecessor Company represented the excess of purchase
consideration paid over the fair value of net assets acquired and was amortized
on a straight-line basis over a period of 40 years. Accumulated goodwill
amortization at March 31, 2001 was $0. Goodwill amortization expense was $3.6
million and $7.5 million for the years ended March 31, 2001 and 2000,
respectively.

During the third quarter of the year ended March 31, 2001, the Predecessor
Company changed its method of accounting for assessing whether an impairment
existed in the recorded amount of acquired business unit goodwill and other
intangible assets, from an undiscounted cash flow method to a fair value method.
Under its previous accounting method, this determination was made whenever
events or circumstances indicated that expected undiscounted future cash flows
were less than the recorded investment amounts of acquired businesses, including
business unit goodwill and other intangible assets. Under the fair

F-8

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value method, the determination of whether an impairment exists was made
whenever events or circumstances indicated that the fair value of investments in
acquired businesses, including business unit goodwill and other intangibles, was
less than the recorded amount. Any impairment was measured by comparing the
recorded amount of investments in acquired businesses, including business unit
goodwill and other intangibles, to the fair value. Fair value was determined on
the basis of appraised market values, or in the absence of appraised market
values, on the basis of discounted cash flows.

The change in method of accounting for assessing whether an impairment
existed in the recorded amount of acquired business unit goodwill and other
intangible assets was considered a change in accounting inseparable from a
change in estimate. The effects of the change in accounting are applied on a
prospective basis as of October 1, 2000. As a result of applying the new
accounting policy, the Predecessor Company recorded a goodwill impairment charge
of $280.1 million in the quarter ended December 31, 2000 representing the entire
amount of unamortized business unit goodwill and other intangibles at October 1,
2000.

DEFERRED FINANCING COSTS, NET
Deferred financing costs represent costs incurred in connection with the
placement of long-term debt and are capitalized and amortized to interest
expense over the term of the long-term debt. Deferred financing costs
amortization expense for the nine months ended March 31, 2002, the three months
ended June 30, 2001 and the years ended March 31, 2001 and 2000 was $0.9
million, $1.2 million, $3.0 million and $3.1 million, respectively. The deferred
financing cost accumulated amortization at March 31, 2002 and 2001 was $0.9
million and $1.9 million, respectively.

INVESTMENTS IN JOINT VENTURES
Investments in joint ventures represents the Company's interest in joint
ventures which are engaged in the scrap metals recycling business, including the
Company's 28.5% interest in Southern Recycling, L.L.C. ("Southern").

Adverse conditions in the scrap industry caused substantial losses
pervasively throughout the domestic scrap processing industry during the year
ended March 31, 2001, including Southern. The adverse conditions effected the
results and outlook for the Company's joint venture investment in Southern.
Consequently, in the fourth quarter of the year ended March 31, 2001, the
Company identified an impairment in its investment in Southern. The Company
recorded a charge of $1.7 million to reduce its investment in Southern to zero.
This charge is reflected in income (loss) from joint ventures in the statement
of operations.

COMPREHENSIVE LOSS
Comprehensive loss, which is reported on the consolidated statement of
stockholders' equity, consists of net income (loss) and other gains/losses
affecting stockholders' equity that, under generally accepted accounting
principles, are excluded from net income (loss). Comprehensive loss was as
follows (in thousands):

F-9

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk are primarily trade accounts receivable. The
Company sells its products primarily to scrap metal brokers and steel mills
located in the United States. Generally, the Company does not require collateral
or other security to support customer receivables. Sales to customers outside of
the United States are settled by payment in U.S. dollars and generally are
secured by letters of credit.

The Company historically had not experienced material losses from the
noncollection of accounts receivables. However, since April 2000, weak market
conditions in the steel sector led to bankruptcy filings by certain of the
Company's customers including, but not limited to, LTV Steel Company, Inc. and
Northwestern Steel and Wire Company. These bankruptcies have resulted in
uncollected receivables of approximately $8 million since April 2000.

For the nine months ended March 31, 2002, the ten largest customers of the
Company represented approximately 39% of consolidated sales. These customers
comprised approximately 36% of accounts receivable at March 31, 2002. Sales
during the nine months ended March 31, 2002 to The David J. Joseph Company
represented approximately 14% of consolidated net sales. For the year ended
March 31, 2001, the 10 largest customers of the Company represented
approximately 33% of consolidated net sales. These customers comprised
approximately 30% of accounts receivable at March 31, 2001. Sales during the
year ended March 31, 2001 to The David J. Joseph Company represented
approximately 10% of consolidated net sales.

EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted earnings per share ("EPS") are calculated in accordance
with SFAS No. 128, "Earnings Per Share." Basic EPS is computed by dividing
reported net income (loss) applicable to common stock by the weighted average
shares outstanding. Diluted EPS includes the incremental shares attributable to
common stock equivalents, including stock options, warrants, convertible debt
and convertible preferred stock.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments including other assets,
accounts payable, and current portion of long-term debt approximate the related
fair value because of the relatively short maturity of these instruments.

The carrying values and estimated fair values of futures contracts and
long-term debt were as follows at March 31, (in thousands):

As a result of adopting SFAS No. 133 on April 1, 2001, the carrying amounts
of futures contracts are equal to the fair values as determined from market
quotes. The fair values of long-term debt were determined from either market
quotes or from instruments with similar terms and maturities.

RECENT ACCOUNTING PRONOUNCEMENT
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. SFAS No. 144 significantly changes the
criteria that would have to be met to classify an asset as held-for-sale,
although it retains many of the fundamental recognition and measurement
provisions

F-10

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of SFAS No. 121. This Statement became effective for the Company on April 1,
2002 and is not expected to have a material effect on the Company's consolidated
financial position, results of operations or cash flows.

NOTE 2 -- REORGANIZATION UNDER CHAPTER 11

On the Petition Date, the Company filed voluntary petitions commencing
cases under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. From
November 20, 2000 until June 30, 2001, the Company operated its businesses as
debtors-in-possession. These bankruptcy proceedings are referred to as the
"Chapter 11 proceedings" herein.

PLAN OF REORGANIZATION
In furtherance of an agreement reached between the Company and the holders
of a significant percentage of the Predecessor Company's pre-petition debt prior
to the initiation of the Chapter 11 proceedings, the Company filed a Joint and
Amended Plan of Reorganization (the "Plan") pursuant to Chapter 11 of the
Bankruptcy Code on May 4, 2001. The Bankruptcy Court confirmed the Plan which
became effective on June 29, 2001 (the "Effective Date"). On the Effective Date,
the Company entered into a new two year, $150 million credit agreement (the
"Credit Agreement") with its lenders (see Note 8 -- Long-term Debt).

The following is a summary of certain material provisions of the Plan. The
summary does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the Plan, as filed with the SEC and the
Bankruptcy Court. The Plan provided for, among other things, the following:

- Junior Secured Note Claims -- on the Effective Date, the holders of the
Predecessor Company's $30 million par amount, 12 3/4% Junior Secured
Notes due June 2004 (the "Junior Secured Notes") received new junior
secured notes (the "New Notes") aggregating $34.0 million. The New Notes
bear interest at 12 3/4% and are due on June 15, 2004. The par amount of
the New Notes represent the par amount of the Junior Secured Notes plus
accrued and unpaid interest through the Effective Date.

- General Trade Claims ("Class 5 Claims") -- the holders of general trade
claims of the Predecessor Company who elected not to receive common
stock, par value $.01 per share ("Common Stock") of the Reorganized
Company, will receive cash payments totaling 30% of their allowed claim.
Such payments will be made, without interest, in four equal annual
installments, with the first installment payable on June 30, 2002. As of
the Effective Date, a payable of $1.3 million was established
representing the liability recorded in connection with the estimated fair
value of the allowed Class 5 Claims.

- Impaired Unsecured Claims ("Class 6 Claims") -- the holders of the
Predecessor Company's $180 million par amount, 10% Senior Subordinated
Notes due May 2008 (the "Subordinated Notes") and the holders of the
Predecessor Company's general trade claims who elected (or are otherwise
deemed under the Plan to have elected) on their ballot to be treated as
an allowed Class 6 Claim, will receive a total of 9,900,000 shares of
Common Stock. As of March 31, 2002, 8,946,370 shares of Common Stock have
been issued to holders of allowed Class 6 Claims. The initial
distribution of Common Stock on account of Class 6 Claims was based on an
estimate of total Class 6 Claims. Class 6 Claims in the initial
distribution was comprised of resolved claims and reserves for unresolved
claims. The Company has filed objections with the Bankruptcy Court
related to unresolved claims. Additional distributions of Common Stock
will be made after the unresolved claims are either resolved through
agreement of the parties or by a final order of the Bankruptcy Court.

- Preferred Stockholder and Common Stockholder Claims ("Equity
Claims") -- the holders of the Predecessor Company's convertible
preferred stock and common stock on the Effective Date received their
pro-rata share of 100,000 shares of Common Stock and warrants (designated
as "Series A Warrants") to purchase 750,000 shares of Common Stock. The
Series A Warrants are immediately

F-11

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

exercisable at a price per share equal to the total amount of liabilities
(allowed under Class 6 of the Plan) converted into Common Stock in
accordance with the Plan divided by 10,000,000.

- Other Significant Provisions -- as of the Effective Date, the Board of
Directors consists of the following non-employee directors: Daniel W.
Dienst, John T. DiLacqua, Kevin P. McGuinness and Harold "Skip" Rouster.
Albert A. Cozzi serves as Chairman of the Board of Directors and Chief
Executive Officer.

- A Management Equity Incentive Plan was approved under the Plan and
provides for the issuance of warrants to purchase 1,000,000 shares of
Common Stock at an exercise price of $6.50 per share (designated as
"Series B Warrants") and warrants to purchase 500,000 shares of Common
Stock at an exercise price of $12.00 per share (designated as "Series C
Warrants").

REORGANIZATION COSTS
Reorganization costs directly associated with the Chapter 11 proceedings
for the nine months ended March 31, 2002, the three months ended June 30, 2001
and the year ended March 31, 2001 are as follows (in thousands):

The Company wrote-off $9.0 million of deferred financing costs related to
its pre-petition credit facility (the "Predecessor Credit Facility") and its
Subordinated Notes. These amounts were written-off because the Predecessor
Credit Facility was terminated and replaced with a $200 million
debtor-in-possession credit facility. In addition, in accordance with the Plan,
all of the Subordinated Notes were cancelled and exchanged for Common Stock.

During the Chapter 11 proceedings, the Company and the Official Committee
of Unsecured Creditors each engaged financial advisors. As a result of the
consummation of the Plan, both financial advisors were entitled to restructuring
success fees. The restructuring success fees paid to the Company's financial
advisor aggregated $2.6 million consisting of $1.0 million paid in cash and $1.6
million paid through the issuance of a 10% note payable due December 31, 2002,
convertible into Common Stock at $6.46 per share.

The financial advisor for the Official Committee of Unsecured Creditors was
CIBC World Markets Corp. ("CIBC"), a company in which Daniel W. Dienst, now a
director of the Company, is a managing director. Professional fees paid to CIBC
during the year ended March 31, 2001 and the three months ended June 30, 2001
was approximately $0.4 million and $2.6 million, respectively. Fees paid to CIBC
during the three months ended June 30, 2001 include restructuring success fees
of $2.1 million, paid as follows: i) $1.05 million in cash and ii) $1.05 million
paid through the issuance of 161,538 shares of Common Stock (at $6.50 per
share).

Rejected contracts and settlement charges represent amounts recorded for
additional allowable claims under rejected employment, lease and other contracts
and settlements reached on existing claims. Fresh-start adjustments represent
the net impact of adjustments to state recorded assets and liabilities at their
fair values.

F-12

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Although the Company has emerged from Chapter 11 bankruptcy, reorganization
costs are still being incurred for professional fees, U.S. Trustee fees and for
settlements related to resolving all claims filed against the Predecessor
Company.

LIABILITIES SUBJECT TO COMPROMISE
The consolidated financial statements of the Predecessor Company include
adjustments and reclassifications to reflect liabilities as "Liabilities Subject
to Compromise." These liabilities were incurred prior to the Petition Date and
were or will be settled in accordance with the Plan. The liabilities subject to
compromise as of March 31, 2001 were as follows (in thousands):

Accounts payable $ 20,204
Accrued interest 9,256
Accrued expenses 7,879
10% Subordinated Notes 180,000
Other debt 2,895
--------
$220,234
========

In accordance with SOP 90-7, the Company did not accrue interest of
approximately $4.6 million and $6.6 million on debt subject to compromise from
the period April 1, 2001 through June 29, 2001, and from the period November 20,
2000 to March 31, 2001, respectively, as such amounts were not permitted to be
paid under the Plan.

NOTE 3 -- FRESH-START REPORTING

As previously discussed, the consolidated financial statements reflect the
use of fresh-start reporting as required by SOP 90-7. Under fresh-start
reporting, a reorganization value for the entity was determined by the Company's
financial advisor based upon the estimated fair value of the enterprise before
considering values allocated to debt to be settled in the reorganization. The
reorganization value was allocated to the fair values of the Company's assets
and liabilities. The portion of the reorganization value which could not be
attributed to specific tangible or identified intangible assets of the
Reorganized Company, was $15.5 million. In accordance with SFAS No. 142, this
amount is reported as "Goodwill" in the consolidated financial statements and is
not being amortized.

The reorganization value for the equity of the Reorganized Company,
aggregating $65 million, was based on the consideration of many factors and
various valuation methods, including a discounted cash flow analysis using
projected financial information, selected publicly traded company market
multiples of certain companies operating businesses viewed to be similar to that
of the Company, and other applicable ratios and valuation techniques believed by
the Company and its financial advisor, to be representative of the Company's
business and industry. The valuation was based upon a number of estimates and
assumptions, which are inherently subject to significant uncertainties and
contingencies beyond the control of the Company.

The consolidated statement of operations of the Predecessor Company for the
three months ended June 30, 2001 reflect fresh start reporting adjustments of
$0.9 million and an extraordinary gain of $145.7 million related to the
discharge of indebtedness in accordance with the Plan. The following summarizes

F-13

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the effects of fresh-start reporting on the Company's consolidated balance sheet
as of June 30, 2001 (in thousands):

- ---------------

NOTES:

(a) Reflects the proceeds of the Credit Agreement, the repayment of the
Company's obligations under the DIP Agreement and the deferred financing
costs paid with respect to the Credit Agreement.

(b) Reflects the exchange of the Junior Secured Notes for the New Notes in an
amount equal to the par amount of the Junior Secured Notes plus unpaid and
accrued interest, the write-off of $2.0 million of unamortized discount on
the Junior Secured Notes and the write-off of $1.2 million of unamortized
deferred financing costs on the Junior Secured Notes.

(c) Reflects the reclassification of cure payments and convenience class
payments to be paid in cash under the Plan.

(d) Reflects the conversion of all Class 6 Claims into 9,900,000 shares of
Common Stock. The $145.4 million excess of obligations eliminated over the
fair value of Common Stock issued to holders of Class 6 Claims is included
in the extraordinary gain of $145.7 million recognized in the three months
ended June 30, 2001.
F-14

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Reflects the conversion of $5.0 million of Class 5 Claims into a 4 year,
non-interest bearing payable. In accordance with the Plan, the non-interest
bearing payable represents 30% of the original claim and is recorded at its
present value. The $3.5 million excess of the obligations eliminated over
the fair value of the non-interest bearing payable is included in the
extraordinary gain of $145.7 million recognized in the three months ended
June 30, 2001.

(f) Reflects the cancellation of the Predecessor Company's convertible
preferred stock, common stock and warrants to purchase common stock and the
issuance of 100,000 shares of Common Stock and warrants to purchase 750,000
shares of Common Stock to the shareholders of the Predecessor Company.

(g) Reflects the adjustment of pension assets and liabilities to fair value.

(h) Reflects the elimination of the accumulated deficit as of June 30, 2001.

(i) Reflects the establishment of Goodwill representing the excess of the
reorganization value over the aggregate fair value of the Company's
tangible and identifiable intangible assets.

NOTE 4 -- NON-CASH AND NON-RECURRING EXPENSES

During the nine months ended March 31, 2002, the three months ended June
30, 2001 and the years ended March 31, 2001 and 2000, the Company recorded the
following non-cash and non-recurring expenses and related reserve activity (in
thousands):

SEVERANCE, FACILITY ABANDONMENT AND INTEGRATION AND ASSET IMPAIRMENT

YEAR ENDED MARCH 31, 2000 ACTIVITY
Effective July 15, 1999, T. Benjamin Jennings resigned as the Company's
Chairman of the Board and Chief Executive Officer, as a director of the Company,
and as an officer and director of all of the Company's subsidiaries for which he
served in such capacities. In connection with his resignation, the Company
entered into a settlement agreement and general release with Mr. Jennings (the
"Jennings Settlement Agreement").

Mr. Jennings' employment agreement was terminated and superseded by the
terms of the Jennings Settlement Agreement. Pursuant to the terms of the
Jennings Settlement Agreement, Mr. Jennings received
F-15

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $2.1 million in the year ended March 31, 2000 in a lump-sum cash
payment from the Company, and the continuation of health, dental and life
insurance and certain other benefits as set forth in the Jennings Settlement
Agreement. In accordance with the Jennings Settlement Agreement, on January 2,
2000, the Company also relinquished its rights to an outstanding $500,000 loan
previously advanced to Mr. Jennings, plus accrued interest thereon. In addition,
Mr. Jennings agreed to release, waive and renounce his interest under and
pursuant to the amended and restated stockholders' agreement, dated February 12,
1999. The Company and Mr. Jennings agreed to mutual general releases from any
and all liabilities arising out of any matter or event occurring on or prior to
the date of the Jennings Settlement Agreement.

Effective August 1, 1999, George A. Isaac, III resigned as the Company's
Executive Vice President and as an officer and director of all of the Company's
subsidiaries for which he served in such capacities. In connection with his
resignation, Mr. Isaac invoked what he believed to be a contractual entitlement
to certain "change of control" provisions included in his employment agreement
with the Company which were triggered by the resignation of Gerard M. Jacobs,
the Company's former Chief Executive Officer. In connection with his resignation
and the invocation of the "change of control" provisions of his employment
agreement, the Company entered into a settlement agreement and general release
with Mr. Isaac (the "Isaac Settlement Agreement"). Mr. Isaac's employment
agreement was terminated and superseded by the terms of the Isaac Settlement
Agreement. Pursuant to the terms of the Isaac Settlement Agreement, Mr. Isaac
received cash payments of approximately $1.2 million in the year ended March 31,
2000, and the continuation of health, dental and life insurance plans. The
Company and Mr. Isaac agreed to mutual general releases from any and all
liabilities arising out of any matter or event occurring on or prior to the date
of the Isaac Settlement Agreement.

Severance, facility closure and other charges also included severance,
relocation and other employee costs totaling $1.2 million. Non-cash utilization
primarily relates to the forgiveness of a note receivable from T. Benjamin
Jennings and non-cash severance and other compensation.

YEAR ENDED MARCH 31, 2001 ACTIVITY
During the three months ended June 30, 2000, the Company recognized a $2.6
million asset impairment charge related to a promissory note, including accrued
interest, received by the Company in conjunction with the sale of its former
Superior Forge, Inc. ("Superior") subsidiary. The Company determined it was
necessary to fully reserve the note receivable and accrued interest based on
factors including (i) quarterly interest payments on the note receivable have
not been paid since September 1999, (ii) losses from Superior's operations
exceeded those planned, and (iii) the perceived inability of Superior to obtain
capital to refinance its obligations.

As a result of the initiation of the Chapter 11 proceedings, the Company
performed a comprehensive review of its scrap metals operations to evaluate the
long term economic viability of certain of its investments and to accelerate the
integration of various operations in recognition of the significant adverse
market conditions during the year ended March 31, 2001, its liquidity needs, and
ongoing integration and consolidation efforts. The review resulted in decisions
made in the fourth quarter of the year ended March 31, 2001 to abandon
under-performing recycling operations in Ohio and Arizona. In connection with
the facility abandonments and other termination arrangements, the Company
incurred $0.2 million of severance and $0.4 million for lease cancellation,
facility cleanup and other facility closure costs.

The recycling facilities that were abandoned were integrated, where
economically justified, into other Company facilities. In those instances where
equipment was transferred to other Company facilities, such equipment was
transferred at its carrying value. Equipment to be disposed of or otherwise
converted to scrap was taken out of service and written down to its net
realizable value resulting in a non-cash charge of $3.2 million.

F-16

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

THREE MONTHS ENDED JUNE 30, 2001 ACTIVITY
During the three months ended June 30, 2001, the Company recognized a $1.9
million asset impairment charge related to excess equipment to be disposed of or
otherwise abandoned.

NINE MONTHS ENDED MARCH 31, 2002 ACTIVITY
During December 2001, the Company completed an evaluation of the economic
viability of certain of its operations considering the current market
conditions, liquidity needs and the outlook for a return to historical operating
levels. As a result, management implemented a plan to dispose of a facility and
has commenced a complete wind-down of its operations. Non-cash and non-recurring
expense includes a $3.1 million asset impairment charge related to this decision
recorded during the three months ended December 31, 2001.

During March 2002, the Company recognized a $0.8 million asset impairment
charge related to property and equipment. The impairment charge included
adjustments to the carrying value of property and equipment previously
classified as held for sale as estimates of their fair values were revised based
on current market conditions and charges related to additional excess equipment
to be disposed of or otherwise abandoned.

MERGER RELATED COSTS

The activity during the year ended March 31, 2000 represents payments made
on the buy-out of contracts assumed in connection with an acquisition. During
the year ended March 31, 2001, the Company made payments of $38,000 relating to
the contracts and then rejected the contracts in the Chapter 11 proceedings. The
non-cash utilization of $375,000 represented the remaining balance due on the
contracts which were reclassified to a liability subject to compromise and
settled in accordance with the Plan.

NOTE 5 -- DISCONTINUED OPERATIONS

During the year ended March 31, 1997, the Company sold its computer printer
and related products business for approximately $1.3 million in cash and other
contingent consideration in the form of royalties on future product sales. The
royalty agreement expired during the year ended March 31, 2000.

Consideration from royalty income was recognized as earned and was reported
as additional gain on sale of discontinued operations. Income tax provision for
the gain on sale of discontinued operations was approximately $0.3 million for
the year ended March 31, 2000.

NOTE 6 -- INVENTORIES

Inventories for all periods presented are stated at the lower of cost or
market. Cost is determined principally on the average cost method. Inventories
consist of the following categories at March 31 (in thousands):

F-17

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- PROPERTY AND EQUIPMENT

As a result of fresh-start reporting, on the Effective Date, property and
equipment was recorded at fair value (which approximated book value) and
accumulated depreciation was eliminated. Property and equipment consists of the
following at March 31 (in thousands):

Depreciation expense was $13.7 million, $4.7 million, $19.4 million and
$18.9 million for the nine months ended March 31, 2002, the three months ended
June 30, 2001 and the years ended March 31, 2001 and 2000, respectively. At
March 31, 2002 and 2001, $10.1 million and $6.5 million of property and
equipment was classified as held for sale, respectively, and is reported in
current assets in the consolidated balance sheets.

NOTE 8 -- LONG-TERM DEBT

Long-term debt consists of the following at March 31 (in thousands):

F-18

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled maturities of long-term debt are as follows (in thousands):

FISCAL YEAR ENDING, MARCH 31
2003 $ 2,321
2004 97,230
2005 34,118
2006 53
2007 53
Thereafter 185
--------
Total $133,960
========

CREDIT FACILITIES
In connection with the Chapter 11 proceedings, the Company entered into a
$200 million debtor-in-possession credit facility (the "DIP Agreement") which
established a lending arrangement for the Company under certain conditions while
in bankruptcy. The DIP Agreement was replaced on June 29, 2001 by a $150 million
revolving loan and letter of credit facility (the "Credit Agreement"). The
Credit Agreement was entered into by the Company and Bankers Trust Company, as
agent for the lenders thereunder and the lenders a party thereto and expires on
June 29, 2003. The Credit Agreement is available to fund working capital needs
and for general corporate purposes.

Borrowings under the Credit Agreement are subject to certain borrowing base
limitations based upon a formula equal to 85% of eligible accounts receivable,
the lesser of $65 million or 70% of eligible inventory, and a fixed asset
sublimit as of March 31, 2002 of $33.9 million, which amortizes by $2.4 million
on a quarterly basis and under certain other conditions. In addition, as of
March 31, 2002, supplemental availability of approximately $11.6 million is
provided, subject to periodic amortization of $1.2 million each quarter and
other reductions. A security interest in substantially all of the assets and
properties of the Company, including pledges of the capital stock of the
Company's subsidiaries, has been granted to the lenders as collateral against
the obligations of the Company under the Credit Agreement. The Credit Agreement
provides the Company with the option of borrowing based either on the prime rate
(as specified by Deutsche Bank AG, New York Branch) or at the London Interbank
Offered Rate ("LIBOR") plus a margin. Pursuant to the Credit Agreement, the
Company pays a fee of .375% on the undrawn portion of the facility. In
consideration for the Credit Agreement, the Company paid a closing fee of $1
million to the lenders under the Credit Agreement and is expecting to pay a $2
million facility fee on June 29, 2002.

The Credit Agreement requires the Company to meet certain financial tests,
including an interest coverage ratio and a leverage ratio (each as defined in
the Credit Agreement). The Credit Agreement also contains covenants which, among
other things, limit (i) the amount of capital expenditures; (ii) the incurrence
of additional indebtedness; (iii) the payment of dividends; (iv) transactions
with affiliates; (v) asset sales; (vi) acquisitions; (vii) investments; (viii)
mergers and consolidations; (ix) prepayments of certain other indebtedness; (x)
liens and encumbrances; and (xi) other matters customarily restricted in such
agreements.

The Company's ability to meet financial ratios and tests in the future may
be affected by events beyond its control, including fluctuations in operating
cash flows and working capital. While the Company currently expects to be in
compliance with the covenants and satisfy the financial ratios and tests in the
future, there can be no assurance that the Company will meet such financial
ratios and tests or that it will be able to obtain future amendments or waivers
to the Credit Agreement, if so needed, to avoid a default. In the event of a
default, the lenders could elect to not make loans available to the Company and
declare all amounts borrowed under the Credit Agreement to be due and payable.

F-19

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Credit Agreement provides for a maturity date of June 29, 2003. The
Company expects that it will be able to refinance its obligations under the
Credit Agreement by either extending the maturity date of the existing facility
or through replacement of the facility with a facility including substitute
lenders. In the event that the Company is unable to extend the maturity date of
the Credit Agreement, the lenders could elect to not make loans available to the
Company and declare all amounts borrowed under the Credit Agreement to be due
and payable.

NEW NOTES
On May 7, 1999, the Company issued $30 million par amount of Junior Secured
Notes. The December 15, 2000 and June 15, 2001 semi-annual interest payments,
totaling approximately $3.8 million, were not made in respect of the Junior
Secured Notes as a result of the Chapter 11 proceedings. On the Effective Date,
pursuant to the Plan, the Junior Secured Notes were exchanged for New Notes in a
principal amount equal to the par amount of the Junior Secured Notes, plus
approximately $4.0 million of accrued and unpaid interest up to the Effective
Date. A second priority lien on substantially all of the Company's personal
property, plant (to the extent it constitutes fixtures) and equipment has been
pledged as collateral against the New Notes.

Interest on the New Notes is payable semi-annually during June and December
of each year. The New Notes are redeemable at the Company's option (in multiples
of $10 million) at a redemption price of 100% of the principal amount thereof,
plus accrued and unpaid interest. The New Notes are redeemable at the option of
the holders of such notes at a repurchase price of 101% of the principal amount
thereof, plus accrued and unpaid interest, in the event the Company experiences
a change of control (as such term is defined in the Indenture governing the New
Notes). The Company is required to redeem all or a pro-rata portion of the New
Notes at a repurchase price of 100% of the principal amount thereof, plus
accrued and unpaid interest, in the event that the Company makes certain asset
sales.

The Indenture governing the Junior Secured Notes was amended and restated
in accordance with the Plan in order to reflect, among other things, the
increase in the principal amount of the New Notes. The Indenture, as amended,
contains restrictions including limits on, among other things, the Company's
ability to: (i) incur additional indebtedness; (ii) pay dividends or
distributions on its capital stock or repurchase its capital stock; (iii) issue
stock of subsidiaries; (iv) make certain investments; (v) create liens on its
assets; (vi) enter into transactions with affiliates; (vii) merge or consolidate
with another company; and (viii) transfer and sell assets or enter into sale and
leaseback transactions.

CONVERTIBLE DEBT
As indicated in Note 2 -- Reorganization under Chapter 11, the Company
issued a promissory note to its financial advisor involved in the Chapter 11
proceedings. The promissory note was issued in an amount of $1.6 million and
bears interest at 10% per annum. The promissory note matures on December 31,
2002 and the Company is required to make interest payments each quarter. The
holder of the promissory note has the option of converting a minimum of $500,000
of the principal amount of the promissory note into Common Stock at $6.46 per
share at any time prior to maturity.

NOTE 9 -- INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Due to the Predecessor Company's history of losses and
uncertainty regarding the Company's ability to generate future taxable income,
management has determined that it is
F-20

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

more likely than not that deferred tax benefits will not be realizable.
Accordingly, the net benefit of the Company's deferred tax asset has been
reduced by a valuation allowance. The provision (benefit) for federal and state
income taxes is as follows (in thousands):

The components of deferred tax assets and liabilities at March 31, related
to the following (in thousands):

At the Effective Date, the Predecessor Company and its subsidiaries had
available net operating loss ("NOL") carryforwards for federal income tax
purposes of approximately $130 million. These NOL carryforwards have been
reduced as result of the discharge and cancellation of various pre-petition
liabilities under the Plan. The Reorganized Company has not recorded a financial
statement benefit for the NOL carryforwards because the requirements to record
such a benefit have not been satisfied. The Reorganized Company has available
NOL carryforwards of approximately $76 million, for federal income tax purposes,
which expire through 2022. Further, as a result of a statutory "ownership
change" (as defined in Section 382 of the Internal Revenue Code) that occurred
as a result of the effectiveness of the Plan, it is anticipated that

F-21

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Reorganized Company's ability to utilize the Predecessor Company's NOL
carryforwards for federal income tax purposes will be restricted to
approximately $3 million per year. If the Company, in future tax periods, were
able to and elected to utilize such NOL carryforwards and recognize tax benefits
attributable to the Predecessor Company's NOL carryforwards, such benefits would
be applied to certain balance sheet accounts in accordance with SFAS No. 109,
"Accounting for Income Taxes." The Reorganized Company has incurred an
additional $22 million of post-change NOL carryforwards which also expire in
2022.

The reconciliation of the federal income tax rate to the Company's
effective tax rate is as follows:

NOTE 10 -- EMPLOYEE BENEFIT PLANS

401(K) AND PROFIT SHARING PLANS
The Company offers a 401(k) plan covering substantially all employees. For
non-union employees, the Company provides a matching contribution equal to 20%
of the employees pre-tax contribution, up to 5% of the employees compensation.
For employees covered under collective bargaining agreements, Company matching
contributions are made in accordance with each respective collective bargaining
agreement. Forfeitures of unvested Company contributions are used to reduce
future Company matching contributions. The Company also may make a discretionary
profit sharing contribution to the 401(k) plan. Matching contributions made by
the Company amounted to $0.2 million for the nine months ended March 31, 2002,
and $0.2 million for both the years ended March 31, 2001 and 2000. No
discretionary contributions have been made into the 401(k) plan.

PENSION PLANS
Some of the Company's wholly-owned subsidiaries have defined benefit
pension plans covering certain employees and groups of employees. Net pension
cost (income) under these plans for the nine months ended March 31, 2002, the
three months ended June 30, 2001 and the years ended March 31, 2001 and 2000
were approximately $0.1 million, $0.0 million, $(0.1) million and $0.3 million,
respectively. At March 31, 2002 and 2001, the pension benefit obligation
exceeded the fair value of plan assets by $2.2 million and $0.4 million,
respectively. The Company has recorded minimum pension liabilities of $2.1
million and $1.1 million at March 31, 2002 and 2001, respectively.

As of March 31, 2000, the Company permanently eliminated benefit accruals
for future service for non-union employees covered under its defined benefit
pension plans. As a result, the Company recognized a net curtailment gain of
approximately $0.6 million which was recorded as a reduction in general and
administrative expenses in the fourth quarter of the year ended March 31, 2000.

F-22

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

LEASES
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease expense was approximately $6.9 million, $2.2
million, $8.2 million and $6.2 million for the nine months ended March 31, 2002,
the three months ended June 30, 2001 and the years ended March 31, 2001 and
2000, respectively. Future minimum lease payments under non-cancelable operating
leases are as follows (in thousands):

ENVIRONMENTAL MATTERS
The Company is subject to comprehensive local, state, federal and
international regulatory and statutory requirements relating to the acceptance,
storage, handing and disposal of solid waste and waste water, air emissions,
soil contamination and employee health, among others. The Company believes that
it and its subsidiaries are in material compliance with currently applicable
environmental and other applicable laws and regulations. However, environmental
legislation may in the future be enacted and create liability for past actions
and the Company or its subsidiaries may be fined or held liable for damages.

Prior to the Chapter 11 proceedings, certain of the Company's subsidiaries
received notices from the United States Environmental Protection Agency ("EPA")
that each of these companies and numerous other parties are considered
potentially responsible parties and may be obligated under Superfund to pay a
portion of the cost of remedial investigation, feasibility studies and,
ultimately, remediation to correct alleged releases of hazardous substances at
various third party sites. Superfund may impose joint and several liability for
the costs of remedial investigations and actions on the entities that arranged
for disposal of certain wastes, the waste transporters that selected the
disposal sites, and the owners and operators of these sites. Responsible parties
(or any one of them) may be required to bear all of such costs regardless of
fault, legality of the original disposal, or ownership of the disposal site.
Based upon the Company's analysis of its environmental exposure, the Company
currently does not expect the potential liability of its subsidiaries in these
matters to have a material adverse effect on the its financial condition or
results of operations.

At March 31, 2002 and 2001, the Company had reserves of $0.7 million and
$1.3 million, respectively, for environmental-related contingencies.

LEGAL PROCEEDINGS
From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to its business. A significant
portion of these matters result from environmental compliance issues and workers
compensation related claims arising from the Company's operations. There are
presently no legal proceedings pending against the Company which, in the opinion
of the Company's management, is likely to have a material adverse effect on its
business, financial condition or results of operations.

PURCHASE OF REAL PROPERTY
In November 2001, the Company amended its lease agreement for real property
on which it operates a scrap metals recycling facility in Houston, Texas. The
lease agreement expires on October 31, 2006 and provides for, among other
things, an option for the lessor to sell the real property to the Company
beginning on the 22nd month of the lease at an amount which approximates fair
value. The Company also has an option to

F-23

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase the real property beginning on the 22nd month of the lease. The
purchase price for the real property is based on the month in which the option
is exercised as follows:

The Company has an option to purchase real property in Tucson, Arizona,
where it currently operates a scrap metals recycling facility, for $1.1 million.
The purchase option expires on December 31, 2002. If the Company chooses not to
exercise its option, the Company will forfeit a $0.2 million deposit.

ISSUANCE OF COMMON STOCK
In July 2003, the Company may be required to issue Common Stock to three of
its employees with an aggregate value of $1.0 million, pursuant to employment
contracts with these three employees. The issuance of the Common Stock is
contingent on these individuals being employed by the Company on July 7, 2003.
At March 31, 2002, $0.7 million has been accrued as a liability associated with
these contracts.

NOTE 12 -- STOCKHOLDERS' EQUITY

Pursuant to the Plan, the Company filed a Second Amended and Restated
Certificate of Incorporation with the Delaware Secretary of State under which
the authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, par value $.01 per share and 2,000,000 shares of preferred stock,
par value $.01 per share.

In accordance with the Plan, all outstanding shares of the Predecessor
Company's common stock, convertible preferred stock, and warrants and options to
purchase common stock were cancelled as of the Effective Date.

As indicated in Note 2 -- Reorganization Under Chapter 11, the Company has
not yet issued all the shares of Common Stock and Series A Warrants pursuant to
the Plan. The Company has reported the value of the Common Stock and Series A
Warrants not yet issued as "new common equity -- issuable." In the case of Class
6 Claims holders, remaining shares of Common Stock will be distributed upon
resolution of unresolved claims in the Chapter 11 proceedings. Distributions of
Common Stock and Series A Warrants to Equity Claims holders require the return
of the Predecessor Company's common stock by the Equity Claims holders.

NOTE 13 -- LOSS PER SHARE

As indicated in Note 2 -- Reorganization Under Chapter 11, the Company has
not yet issued all 10,000,000 shares required to be distributed in accordance
with the Plan. However, for purposes of the EPS calculation, all 10,000,000
shares are deemed to be issued and outstanding.

F-24

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a reconciliation of the numerators and denominators used
in computing EPS (in thousands, except per share amounts):

Due to the loss from continuing operations applicable to common stock for
all the periods presented, the effect of dilutive stock options and warrants
were not included as their effect would have been anti-dilutive. In addition,
the convertible note payable (see Note 8 -- Long-term Debt) is anti-dilutive and
has not been included in the calculation of diluted EPS.

NOTE 14 -- STOCK BASED COMPENSATION

STOCK OPTION PLANS
On November 2, 1998, the Predecessor Company's stockholders approved an
amendment to its 1995 Stock Option Plan (the "1995 Plan") to reserve an
aggregate 5,200,000 shares of common stock which could be issued to employees
and consultants. Options under the 1995 Plan were generally granted at an
exercise price equal to or greater than the market price of the common stock on
the date of grant. These options generally vested between 3 to 5 years and had
terms ranging from 5 to 10 years. The 1995 Plan and all options granted
thereunder were cancelled as of the Effective Date in accordance with the Plan.

On November 2, 1998, the Predecessor Company's stockholders approved the
1998 Director Compensation Plan (the "Director Plan") under which up to 250,000
shares of common stock were available for grant to nonemployee directors.
Options granted under the Director Plan were fully vested and exercisable at the
time of grant. The Director Plan and all options granted thereunder were
cancelled as of the Effective Date in accordance with the Plan.

F-25

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized information for the Predecessor Company's stock option plans are
as follows:

Options available for grant as of March 31, 2001 and 2000 were 2,264,638
and 1,861,403, respectively.

WARRANTS
As indicated in Note 2 -- Reorganization Under Chapter 11, a Management
Equity Incentive Plan was approved under the Plan. The Series B and Series C
Warrants were issued to key employees and each vest ratably over three years and
are exercisable for a period of five years and seven years, respectively, from
the grant date.

The Series A Warrants, issued pursuant to the Plan, are immediately
exercisable and expire on June 29, 2006. As of March 31, 2002, Series A Warrants
to purchase 675,218 shares of Common Stock had been issued. The exercise price
for the Series A Warrants has not yet been fixed. The estimated strike price is
based on a formula designated in the Plan which calls for the strike price to be
equal to the allowed Class 6 Claims divided by 10 million. The Company currently
estimates the exercise price to be approximately $21.50 per share.

The Predecessor Company also issued warrants to purchase common stock in
connection with acquisitions and to employees and directors for services. All
warrants issued by the Predecessor Company were cancelled pursuant to the Plan.

F-26

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The summary of warrant activity is as follows:

The following table summarizes information about warrants outstanding at
March 31, 2002:

PRO FORMA DISCLOSURES
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting or Stock-Based Compensation." The Company continues to account for
stock-based compensation under the provisions of APB Opinion No. 25 and,
accordingly, does not recognize compensation cost for options and warrants with
exercise prices equal to or greater than market value at the date of grant. As
required by SFAS No. 123, the following disclosure of pro forma information
provides the effects on net loss and net loss per share as if the

F-27

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company had accounted for its employee stock-based compensation under the fair
value method prescribed by SFAS No. 123 (in thousands, except per share data and
assumptions):

The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The Black-Scholes option
valuation model was originally developed for use in estimating the fair value of
traded options, which have different characteristics than the Company's employee
stock options and warrants. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. As a result, it is management's opinion that the Black-Scholes model
may not necessarily provide a reliable single measure of the fair value of
employee stock options and warrants.

NOTE 15 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth certain unaudited quarterly financial
information for the Company's last eight fiscal quarters (in thousands, except
per share amounts):

F-28

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------
(a) Reflects charges recorded for the impairment of fixed assets, facility
abandonments and a note receivable from Superior. See Note 4 -- Non-Cash and
Non-Recurring Expenses.
(b) Reflects the impairment of goodwill recognized in the quarter ended December
31, 2000, as a result of a change in the Predecessor Company's accounting
policy for evaluating the carrying value of goodwill. See Note
1 -- Significant Accounting Policies.
(c) Loss in the quarter ended March 31, 2001 includes the impairment of the
Company's investment in Southern of approximately $1.8 million. See Note
1 -- Significant Accounting Policies.
(d) The sum of the quarterly per share amounts will not equal per share amounts
reported for the year-to-date period due to the changes in the number of
weighted-average shares outstanding for each period.

F-29

METAL MANAGEMENT, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

F-30