METAL MANAGEMENT INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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
(Address of principal executive offices including zip code)

Registrant's telephone number, including area code: (312) 645-0700

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 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 August 1, 2002, the Registrant had 9,371,317 shares of common stock
outstanding.

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INDEX

PART I: FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)

The accompanying notes are an integral part of these financial statements

1

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

The accompanying notes are an integral part of these financial statements

2

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

The accompanying notes are an integral part of these financial statements

3

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

The accompanying notes are an integral part of these financial statements

4

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

NOTE 1 -- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the
accounts of Metal Management, Inc., a Delaware corporation, and its subsidiaries
(herein referred to as the "Company") and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). Certain amounts have been reclassified from the previously reported
financial statements in order to conform to the financial statement presentation
of the current period.

On November 20, 2000 (the "Petition Date"), the Company filed voluntarily
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the
"Chapter 11 proceedings") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). The Company's first amended joint
plan of reorganization (the "Plan") was confirmed by the Bankruptcy Court and
became effective on June 29, 2001 (the "Effective Date"). With the change in
ownership resulting from the Plan, the Company adopted fresh-start reporting in
accordance with the recommended accounting principles for entities emerging from
Chapter 11 set forth in the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7").

The consolidated financial statements for the Company for the periods
subsequent to June 30, 2001, following the effective date of Plan, 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 unaudited 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 since the
effective date of the Plan, the Reorganized Company follows the same accounting
policies as the Predecessor Company.

The March 31, 2002 balance sheet information has been derived from the
Company's audited financial statements. All significant intercompany accounts,
transactions and profits have been eliminated. Certain information related to
the Company's organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and the results of
operations for the periods presented. Operating results for interim periods are
not necessarily indicative of the results that can be expected for a full year.
These interim financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended March 31, 2002.

NOTE 2 -- REORGANIZATION UNDER CHAPTER 11

Plan of Reorganization

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.

- 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. The first installment was
5

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

NOTE 2 -- REORGANIZATION UNDER CHAPTER 11 -- (CONTINUED)

paid in July 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 June 30, 2002, approximately 9.1 million 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 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. The Company currently estimates the exercise price of the
Series A Warrants to be approximately $21.50 per share.

- A Management Equity Incentive Plan was approved under the Plan and
provided 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"). Series B and Series C Warrants were issued during fiscal
2002.

On the Effective Date, and in connection with the consummation of the Plan,
the Reorganized Company entered into a new $150 million revolving credit
facility (see Note 4 -- Long-Term Debt).

Reorganization costs

Reorganization costs directly associated with the Chapter 11 proceedings
for the three months ended June 30, 2001 were as follows (in thousands):

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

6

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

NOTE 2 -- REORGANIZATION UNDER CHAPTER 11 -- (CONTINUED)

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 three months ended June 30, 2001 were approximately $2.6 million.
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).

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 SOP 90-7 and the application of fresh-start reporting,
the Company adopted Statement of Financing Accounting Standards ("SFAS") No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets" as of June 30, 2001. 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. 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 as goodwill with an indefinite life. As a
result, goodwill of $15.5 million 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.

7

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

NOTE 3 -- INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
principally on the average cost method. Inventories consisted of the following
categories (in thousands):

NOTE 4 --LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):

Credit Facilities

On June 29, 2001, the Company entered into an $150 million revolving loan
and letter of credit facility (the "Credit Agreement"). The Credit Agreement, as
amended, was entered into by the Company and Bankers Trust Company, as agent for
the lenders thereunder and the lenders party thereto and expires in July 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 of $31.5 million as of June 30, 2002, which amortizes by $2.4 million
on a quarterly basis and under certain other conditions. In addition, as of June
30, 2002, supplemental availability of $10.0 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 aggregate fees of $3.0 million.

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

8

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

NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)

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.

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 or otherwise be unable to refinance the
obligations funded under the Credit Agreement before July 2003, 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 at maturity in July
2003.

New Notes

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. The New Notes bear interest at 12 3/4% and
are due on June 15, 2004. 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

9

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

NOTE 4 -- LONG-TERM DEBT -- (CONTINUED)

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 5 -- INCOME TAXES

At the Effective Date, the Predecessor Company and its subsidiaries had
available federal net operating loss ("NOL") carryforwards of approximately $76
million, which expire through 2022. The Reorganized Company has not recorded a
financial statement benefit for the Predecessor Company net deferred tax assets,
including NOL carryforwards, because the requirements to record such a benefit
have not been satisfied. Further, as a result of a statutory "ownership change"
(as defined in Section 382 of the Internal Revenue Code) that occurred on the
Effective Date, it is anticipated that the Reorganized Company's ability to
utilize the Predecessor Company's NOL carryforwards, for federal income tax
purposes, will be restricted to approximately $3.3 million per year. The annual
limitation may be increased by certain transactions which result in recognition
of "built-in" gains (unrecognized gains existing as of the Effective Date). The
Reorganized Company has $22 million of post-change NOL carryforwards which also
expire in 2022.

At the Effective Date, the Company had a net deferred tax asset, including
NOL carryforwards, of approximately $54 million for financial statement
purposes. The Company has not recognized the benefit of pre-emergence net
deferred tax assets due to the uncertainty regarding their ultimate realization.
A valuation allowance was recorded against the entire net deferred tax asset
because of uncertain realization. The benefit of certain post-change NOL
carryforwards has also not been recognized due to the uncertainty regarding
their ultimate realization.

Under fresh-start reporting, realization of net deferred tax assets that
existed as of the emergence date will first reduce goodwill until exhausted and
thereafter are reported as additional paid-in-capital. Consequently, the Company
will recognize cash tax savings due to the utilization of the emergence date
deferred tax assets, without the corresponding reduction in income tax expense.
The realization of certain post-change NOL carryforwards will reduce income tax
expense in the period they are utilized or when the uncertainty regarding their
realization is sufficiently reduced.

During the three months ended June 30, 2002, the Company recognized income
tax expense of $2.2 million. The effective tax rate differs from the statutory
rate for the three months ended June 30, 2002 due to the use of pre-emergence
net deferred tax assets and certain post-change NOL carryforwards. Due to
utilization of NOL carryforwards, the Company does not expect to make any
significant federal or state income tax payments during the current fiscal year.

NOTE 6 -- 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
10

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

NOTE 6 -- STOCKHOLDERS' EQUITY -- (CONTINUED)

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 7 -- EARNINGS 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 earnings per share calculation, all
10,000,000 shares are deemed to be issued and outstanding.

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

Warrants to purchase 2,557,500 shares of Common Stock were outstanding
during the three months ended June 30, 2002, but were not included in the
computation of diluted earnings per share because the warrants' exercise price
was greater than the average market price of the Common Stock during the period.
Due to the loss from continuing operations for the three months ended June 30,
2001, the effect of dilutive stock options and warrants were not included as
their effect would have been anti-dilutive.

11

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

NOTE 8 -- OTHER ITEMS

Derivatives

Effective April 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivatives and Hedges." The cumulative effect of adopting SFAS No. 133 resulted
in an after-tax decrease in net earnings of $0.4 million at April 1, 2001. 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 recognizes the changes in fair values of its futures and
forwards contracts in the statement of operations.

Recent Accounting Pronouncements

Effective April 1, 2002, the Company adopted 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 of SFAS No. 121. The adoption of this Statement did not have a
material effect on the Company's consolidated financial position, results of
operations or cash flows.

In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13,
and Technical Corrections." This statement addresses, among other items, the
classification of gains and losses from extinguishment of debt. Under the
provisions of SFAS No. 145, gains and losses from extinguishment of debt can
only be classified as extraordinary items if they meet the criteria in APB
Opinion No. 30. This statement is effective for fiscal years beginning after May
15, 2002. The Company is currently evaluating the impact of SFAS No. 145 on its
consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF 94-3. SFAS No. 146 is to be applied to
exit or disposal activities initiated after December 31, 2002. The Company is
currently evaluating the impact of SFAS No. 146 on its consolidated financial
statements.

Non-cash and non-recurring expenses

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.

Property and equipment held for sale

On July 15, 2002, the Company sold a parcel of land, which was included in
property and equipment held for sale, for net proceeds of $5.2 million. The sale
of this land will result in a pre-tax gain of approximately $2.5 million which
will be recognized during the three months ending September 30, 2002.

12

This Form 10-Q 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-Q which address
activities, events or developments that Metal Management, Inc. (herein, "Metal
Management," the "Company," "we," "us" or other similar terms) expects or
anticipates 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. These and other risks,
uncertainties and other factors are discussed under "Risk Factors" appearing in
our Annual Report on Form 10-K for the year ended March 31, 2002, as the same
may be amended from time to time.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included under Item 1 of
this Report. In addition, reference should be made to the audited consolidated
financial statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended March 31, 2002 ("Annual Report").

GENERAL

We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 13 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 acquired regional platform companies to serve as platforms into
which subsequent acquisitions would 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, although not significant, 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.

13

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.

CHAPTER 11 BANKRUPTCY AND PLAN OF REORGANIZATION

On November 20, 2000, we filed voluntary petitions 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 business as a debtor-in-possession.

On May 4, 2001, we filed a first amended joint 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 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 aggregating $34.0 million (the "New Notes").

- 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. The first installment was paid in July 2002. On the
Effective Date, 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
Predecessor Company's 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
June 30, 2002, we have issued approximately 9.1 million 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
the Effective Date, 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")
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.

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- A Management Equity Incentive Plan was approved under the Plan that
provided 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"). Series B and Series C Warrants were issued during fiscal
2002.

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 recently issued Financial Reporting Release No. 60, "Cautionary
Advice Regarding Disclosure About Critical Accounting Policies," 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.

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 $1.2 million and $2.4 million at June 30, 2002 and March 31, 2002,
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, financial condition of customers when information is
publicly available, changes in collection patterns and general industry
conditions.

15

As indicated in our Annual Report under 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 methods utilized in our industry. As indicated
in our Annual Report under 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 quickly turning our
inventories as market conditions permit.

Property and equipment held for sale

We periodically 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 these 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 carrying amount of the asset 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.

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.

Income taxes

At the Effective Date, we had a net deferred tax asset, including net
operating loss ("NOL") carryforwards, of approximately $54 million for financial
statement purposes. We have not recognized the benefit of pre-emergence net
deferred tax assets due to the uncertainty regarding their ultimate realization.
The net benefit of our deferred tax asset has been reduced by a valuation
allowance. We have also not recognized the benefit of $22 million of post-change
NOL carryforwards arising since our emergence from bankruptcy due to the
uncertainty regarding their ultimate utilization.

The use of deferred tax assets that arose prior to our emergence from
bankruptcy will reduce income taxes paid, but will not reduce our income tax
expense. Realization of these benefits first reduces goodwill until exhausted
and thereafter is reported as additional paid-in-capital. The realization of
certain post-change NOL carryforwards will reduce income tax expense in the
period they are utilized or when the uncertainty regarding their realization is
sufficiently reduced.

We have substantial NOL carryforwards, but have not recorded any financial
statement benefit for the Predecessor Company's NOL carryforwards or post-change
NOL carryforwards. The utilization of deferred

16

tax assets including NOL carryforwards and the financial statement accounting is
dependent upon the amounts and timing of future taxable income, statutory
restrictions and limitations, and our tax return filing elections.

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 at a maximum by
a stop-loss insurance policy. We record a reserve for the estimated cost of
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 Annual Report which contains accounting
policies and other disclosures required by generally accepted accounting
principles.

RESULTS OF OPERATIONS

The unaudited consolidated financial statements after the Effective Date
are those of a new reporting entity (the "Reorganized Company") and are not
comparable to the pre-confirmation periods of the old reporting entity (the
"Predecessor Company"). However, for purposes of this discussion, the
Reorganized Company's results for the three months ended June 30, 2002 are
compared to the Predecessor Company's results for the three months ended June
30, 2001.

Our results of operations for the three months ended June 30, 2002 showed
significant improvement from the three months ended June 30, 2001, mainly as a
result of our ferrous operations. Since January 2002, our ferrous operations
have benefited from improved volumes, prices and material margins related
primarily to increased domestic production rates for finished and semi-finished
steel and improved conditions for exporting scrap. Although the results of our
ferrous operations exceeded our expectations, the non-ferrous markets remain
weak. We continue to monitor our costs and continually evaluate alternatives to
streamline our operations and reduce costs.

Consolidated net sales for the three months ended June 30, 2002 and 2001 in
broad product categories were as follows ($ in thousands):

Consolidated net sales increased by $27.2 million (16.4%) to $193.5 million
during the three months ended June 30, 2002 compared to consolidated net sales
of $166.3 million during the three months ended

17

June 30, 2001. The increase in consolidated net sales was primarily due to
higher volumes and higher average selling prices for ferrous products shipped,
offset by lower volumes of non-ferrous products shipped.

Ferrous sales increased by $31.6 million (34.8%) to $122.4 million during
the three months ended June 30, 2002 compared to ferrous sales of $90.8 million
during the three months ended June 30, 2001. The increase was mainly a result of
better market conditions that increased units shipped (12.7%) and higher average
selling prices (19.5%).

Non-ferrous sales decreased by $6.2 million (10.8%) to $51.9 million during
the three months ended June 30, 2002 compared to non-ferrous sales of $58.1
million during the three months ended June 30, 2001. The decrease was primarily
due to the exit from our MacLeod operations in California, which ceased
operations during the three months ended June 30, 2002. Specific product lines
within our non-ferrous businesses continue to be impacted from low demand from
the aerospace industry and stainless steel markets which resulted in lower
average selling prices and lower unit sales for non-ferrous metals.

Brokerage ferrous sales increased by $3.9 million (32.6%) to $15.8 million
during the three months ended June 30, 2002 compared to brokerage ferrous sales
of $11.9 million during the three months ended June 30, 2001. The increase was
primarily a result of higher average selling prices (28.5%). 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 $1.3 million (60.2%) to $0.8
million during the three months ended June 30, 2002 compared to brokerage
non-ferrous sales of $2.1 million during the three months ended June 30, 2001.
The decrease was a result of volume declining by 2.9 million pounds and average
realized sales prices declining by $0.04 per pound. 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.

Other revenue is primarily derived from our stevedoring and bus dismantling
operations. During the three months ended June 30, 2002, other revenues
decreased by $0.7 million (22.2%) to $2.6 million. The decline is due, in part,
to the exit from our MacLeod operations during the three months ended June 30,
2002.

Gross profit was $28.3 million (14.6% of sales) during the three months
ended June 30, 2002 compared to gross profit of $17.1 million (10.3% of sales)
during the three months ended June 30, 2001. Gross profit was higher as a result
of increased material margins on ferrous products sold and lower per unit
processing expenses. Processing expenses remained substantially unchanged;
however, more volume was processed through our yards during the current period,
which reduced per unit processing costs.

General and administrative expenses were $11.4 million (5.9% of sales)
during the three months ended June 30, 2002 compared to general and
administrative expenses of $11.7 million (7.0% of sales) during the three months
ended June 30, 2001. Our cost reduction programs implemented in fiscal 2002 have
contributed to a reduction in general and administrative expenses and we
continue to carefully monitor our general and administrative expenses.

Depreciation and amortization expense was $4.4 million (2.3% of sales)
during the three months ended June 30, 2002 compared to depreciation and
amortization expense of $4.7 million (2.8% of sales) during the three months
ended June 30, 2001. Except for the elimination of depreciation expense
associated with the exit from our MacLeod operations, depreciation expense has
remained relatively constant. We operated with virtually the same installed base
of equipment during the three months ended June 30, 2002 and the three months
ended June 30, 2001.

There were no non-cash and non-recurring expenses recognized during the
three months ended June 30, 2002. Non-cash and non-recurring expense was $1.9
million during the three months ended June 30, 2001, which primarily consisted
of asset impairments (see Note 8 to the unaudited consolidated financial
statements included in Item 1 of this Report).

Interest expense was $3.0 million (1.6% of sales) during the three months
ended June 30, 2002 compared to interest expense of $5.2 million (3.1% of sales)
during the three months ended June 30, 2001. The decrease
18

in interest expense was a result of lower borrowings and interest rates under
our credit facilities. Our average borrowings during the three months ended June
30, 2002 were $19 million less then average borrowings during the three months
ended June 30, 2001. The interest rate on borrowings under our credit facility
during the three months ended June 30, 2002 was at the prime rate of interest,
which was almost 500 basis points lower than interest rates on borrowings under
our debtor-in-possession credit facility during the three months ended June 30,
2001.

We did not incur any reorganization costs during the three months ended
June 30, 2002. During the three months ended June 30, 2001, we incurred $10.3
million of reorganization costs, which 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
unaudited consolidated financial statements included in Item 1 of this Report).

During the three months ended June 30, 2002, we recognized income tax
expense of $2.2 million. The effective tax rate differs from the statutory rate
for the three months ended June 30, 2002 due to the use of pre-emergence net
deferred tax assets and certain post-change NOL carryforwards.

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 during the three months
ended June 30, 2001.

We recognized an extraordinary gain of $145.7 million during the three
months ended June 30, 2001 related to the cancellation of our Subordinated Notes
and other unsecured claims in the Chapter 11 proceedings (see Note 2 to the
unaudited consolidated financial statements included in Item 1 of this Report).

Net income was $7.3 million during the three months ended June 30, 2002
compared to a net income of $128.6 million during the three months ended June
30, 2001. Net income during the three months ended June 30, 2002 reflects
significant improvement in our operations as a result of higher volumes of
ferrous scrap metals sold, greater metal margins and lower interest expense. The
net income during the three months ended June 30, 2001 was primarily a result of
a $145.7 million extraordinary gain associated with cancellation of
indebtedness.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

During the three months ended June 30, 2002, we generated $2.7 million of
cash from operating activities, comprised of net income and non-cash items of
$14.9 million offset by investments in working capital of $12.2 million. The
growth in our ferrous business during the three months ended June 30, 2002
required working capital investments primarily in accounts receivable and
inventories which increased by $14.1 million and $1.9 million, respectively. Due
to the utilization of NOL carryforwards, we do not expect to make significant
cash payments for federal or state income taxes during the current fiscal year.
In addition, we made a $2.2 million interest payment on our New Notes on June
15, 2002.

During the three months ended June 30, 2002, we used $1.2 million of cash
for investing activities. Purchases of property and equipment were $1.6 million,
while we generated $0.3 million of cash from the sale of redundant fixed assets.

During the three months ended June 30, 2002, our financing activities used
$1.1 million of cash which were used primarily to repay borrowings under the
revolving credit facilities.

Indebtedness

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, as amended, was entered
into by Bankers Trust Company, as agent for the lenders thereunder, the lenders
a party thereto and us and expires in July 2003. The Credit Agreement is
available to fund working capital needs and for general corporate purposes.
19

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 $31.5 million as of June 30, 2002, which amortizes by $2.4 million
on a quarterly basis and under certain other conditions. In addition, as of June
30, 2002, supplemental availability of approximately $10.0 million 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 aggregate fees of $3.0 million.

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
June 30, 2002. As of July 30, 2002, we had outstanding borrowings of
approximately $90 million under the Credit Agreement and undrawn availability of
approximately $22 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 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.

20

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

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. In addition, we expect to
generate cash in the current fiscal year from asset sales. At June 30, 2002, we
have $10.4 million of property and equipment classified as "held for sale." On
July 15, 2002, we sold a parcel of land which was included in property and
equipment held for sale for net proceeds of approximately $5.2 million. The sale
of this land will result in a pre-tax gain of approximately $2.5 million which
will be recognized during the three months ending September 30, 2002.

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 significant pending acquisitions, we may choose to
consider selective opportunities for "tuck-in" acquisitions during the current
fiscal year.

Capital expenditures were approximately $1.6 million during the three
months ended June 30, 2002. Capital expenditures are planned to be approximately
$11 million in the current fiscal year, which includes costs to complete the
installation of a "Mega" Shredder, the principal machinery which we currently
own, at our facility in Phoenix, Arizona.

We believe our 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 in July 2003. Although we expect to be able to
renew or otherwise refinance our obligations under the Credit Agreement prior to
its expiration, there is no assurance that this will be the case. Additionally,
if we cannot renew our Credit Agreement, we may be required to seek alternative
financing to repay amounts outstanding under the Credit Agreement and to provide
for our working capital needs. We do not expect to be able, in the absence of a
refinancing transaction, to repay all the balances outstanding under the Credit
Agreement which otherwise mature in July 2003. If we are unable to renew or
otherwise modify or extend our Credit Agreement prior to our next periodic SEC
filing, we will be required to classify the Credit Agreement as a current
liability in that subsequent filing.

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.

Commitments

In July 2003, we expect to issue Common Stock to three of our 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 us on July 7, 2003. At June 30, 2002, $0.8 million
has been accrued as a liability associated with these contracts.

21

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.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the Financial Accounting Standards Board ("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," 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.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4,
44, and 64, Amendment of SFAS No. 13, and Technical Corrections." This statement
addresses, among other items, the classification of gains and losses from
extinguishment of debt. Under the provisions of SFAS No. 145, gains and losses
from extinguishment of debt can only be classified as extraordinary items if
they meet the criteria in APB Opinion No. 30. This statement is effective for
fiscal years beginning after May 15, 2002. We are currently evaluating the
impact of SFAS No. 145 on our consolidated financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred and nullifies EITF 94-3. SFAS No. 146 is to be applied to
exit or disposal activities initiated after December 31, 2002. We are currently
evaluating the impact of SFAS No. 146 on our consolidated financial statements.

ITEM 3: 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. Under the provisions of SFAS No. 133, we
have classified these contracts as speculative and as a result, these contracts
are marked to market in our consolidated financial statements.

Reference is made to the quantitative disclosures about market risk
included under Item 7A of our most recent Annual Report on Form 10-K.

22

PART II -- OTHER INFORMATION

ITEM 1: 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. Please refer to Item 3 of our most recent
Annual Report for a description of the litigation in which we are currently
involved.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

See Exhibit Index

(B) REPORTS ON FORM 8-K

No reports were filed on Form 8-K during the quarter ended June 30, 2002.

23

SIGNATURES

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

METAL MANAGEMENT, INC.

By: /s/ ALBERT A. COZZI
------------------------------------
Albert A. Cozzi
Director, Chairman of the
Board, and Chief
Executive Officer
(Principal Executive Officer)

By: /s/ MICHAEL W. TRYON
------------------------------------
Michael W. Tryon
President and Chief
Operating Officer

By: /s/ ROBERT C. LARRY
------------------------------------
Robert C. Larry
Executive Vice President,
Finance and Chief
Financial Officer
(Principal Financial Officer)

By: /s/ AMIT N. PATEL
------------------------------------
Amit N. Patel
Vice President, Finance and
Controller
(Principal Accounting Officer)

Date: August 12, 2002

24

METAL MANAGEMENT, INC.

EXHIBIT INDEX

NUMBER AND DESCRIPTION OF EXHIBIT

2.1 Disclosure Statement with respect to First Amended Joint
Plan of Reorganization of Metal Management, Inc. and its
Subsidiary Debtors, dated May 4, 2001 (incorporated by
reference to Exhibit 2.1 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
3.1 Second Amended and Restated Certificate of Incorporation of
the Company, as filed with the Secretary of State of the
State of Delaware on June 29, 2001 (incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
3.2 Amended and Restated By-Laws of the Company adopted as of
June 29, 2001 (incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended
March 31, 2001).
4.1 Amended and Restated Indenture, dated as of June 29, 2001,
among the Company and BNY Midwest Trust Company
(incorporated by reference to Exhibit 4.5 of the Company's
Annual Report on Form 10-K for the year ended March 31,
2001).
10.1 Amendment No. 1 to the Credit Agreement, dated as of June
29, 2001 (the "Credit Agreement") by and among the Company
and its subsidiaries named therein and Bankers Trust
Company, as Agent and the financial institutions parties
thereto.