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 SEPTEMBER 30, 2002 OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-14836

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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)

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

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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 October 29, 2002, the Registrant had 9,391,830 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 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 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 unaudited consolidated financial statements of 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 received new junior secured notes (the "Junior
Secured 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
5

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

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

payments will be made, without interest, in four equal annual
installments. The total amount to be paid to holders of Class 5 Claims is
$1.3 million. The first installment was paid in July 2002.

- 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 September 30, 2002, approximately 9.1 million shares
of Common Stock have been issued to holders of allowed Class 6 Claims. On
September 17, 2002, a Final Decree Motion was approved by the Bankruptcy
Court which officially closed the Company's Chapter 11 proceedings. The
total amount of Class 6 Claims aggregated to approximately $211.5
million. As a result, the Company expects to issue the remaining shares
to holders of Class 6 Claims by December 2002.

- 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 an exercise price equal
to $21.15 per share.

- Pursuant to the Management Equity Incentive Plan that was approved under
the Plan, the Company issued, to certain employees, warrants to purchase
987,500 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").

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
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 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.

6

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

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

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 unaudited 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 Financial 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 unaudited 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.

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):

7

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

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 on July 1,
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 $29.1 million as of September 30, 2002, which amortizes by $2.4
million on a quarterly basis and under certain other conditions. In addition, as
of September 30, 2002, supplemental availability of $3.6 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 agent for 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 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.

8

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

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

The Company is currently negotiating with its lenders to refinance its
obligations under the Credit Agreement. Based on these negotiations, the Company
expects to enter into a new facility with its lenders which will extend the
maturity date by three years until July 1, 2006. As a condition to that
extension of credit, the Company will be required to refinance its Junior
Secured Notes. In connection with that condition, the Company has retained a
placement agent to seek $50.0 million of new credit financing. 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 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.

Junior Secured Notes

The Junior Secured 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 Junior Secured Notes.

Interest on the Junior Secured Notes is payable semi-annually during June
and December of each year. The Junior Secured 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 Junior
Secured 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 Junior Secured Notes). The
Company is required to redeem all or a pro-rata portion of the Junior Secured
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, 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.

During the three months ended September 30, 2002, the Company recognized an
extraordinary gain, net of tax, of $0.2 million associated with the repurchase
of Junior Secured Notes.

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 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's net deferred tax

9

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

NOTE 5 -- INCOME TAXES -- (CONTINUED)

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.

At the Effective Date, the Predecessor Company had a net deferred tax
asset, including NOL carryforwards, of approximately $54 million for financial
statement purposes. The Reorganized 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-emergence 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 net
deferred tax assets, without the corresponding reduction in income tax expense.
The realization of certain post-emergence 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 six months ended September 30, 2002, the Company recognized
income tax expense of $4.3 million which, for interim purposes, has not been
reported as a reduction in goodwill but rather recorded as an other long-term
liability. The effective tax rate differs from the statutory rate for the six
months ended September 30, 2002 due to the use of pre-emergence net deferred tax
assets and certain post-emergence NOL carryforwards. Due to the utilization of
NOL carryforwards, the Company does not expect to make any significant federal
or state income tax payments during the current fiscal year.

The utilization of deferred tax assets, including NOL carryforwards, and
the financial statement accounting for these tax benefits, including the
estimated tax provision and effective rate for the three and six months ended
September 30, 2002, are dependent upon the amounts and timing of future taxable
income, statutory restrictions and limitations, and the Company's tax return
filing elections. Changes in the Company's assumptions regarding these matters
could impact future tax expense.

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.

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 by
December 2002. 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.

On September 18, 2002, the shareholders of the Company approved the Metal
Management, Inc. 2002 Incentive Stock Plan (the "2002 Incentive Stock Plan").
The 2002 Incentive Stock Plan provides for the issuance of up to 2,000,000
shares of Common Stock of the Company. The Compensation Committee of the Board
of Directors has the authority to issue stock awards under the 2002 Incentive
Stock Plan to the
10

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

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

Company's employees, consultants and directors over a period of up to ten years.
The stock awards can be in the form of stock options, stock appreciation rights
or stock grants. As of September 30, 2002, the Company has issued options to
purchase 60,000 shares of Common Stock under the 2002 Incentive Stock Plan.

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 from continuing operations (in
thousands, except per share amounts):

Warrants and options to purchase approximately 2.6 million shares of Common
Stock were outstanding during the six months ended September 30, 2002, but were
not included in the computation of diluted earnings per share because the
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 September 30, 2001 and 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 set forth in
APB Opinion No. 30. This statement is effective for fiscal years beginning after
May 15, 2002. Upon adoption of SFAS No. 145, the extraordinary gain on the debt
extinguishment recognized during the three months ended September 30, 2002 and
the extraordinary gain on debt discharge recognized by the Predecessor Company
during the three months ended June 30, 2001, will be reclassified to other
income in the Company's statement of operations.

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 does
not expect SFAS No. 146 to have a material effect on its consolidated financial
position, results of operations or cash flows.

Other income

During the three months ended September 30, 2002, the Company sold a parcel
of real property which was classified as "held for sale" on the Effective Date.
The sale resulted in a pre-tax gain of approximately $2.6 million which was
recorded in other income.

As a result of the closure of the Company's Chapter 11 proceedings on
September 17, 2002, the Company finalized the amount owed to holders of Class 5
Claims. This resulted in a $0.2 million reduction in the estimated liability
that was recorded on the Effective Date for payments due to holders of Class 5
Claims. The reduction in this liability was recorded in other income.

12

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

NOTE 8 -- OTHER ITEMS -- (CONTINUED)

Non-cash and non-recurring expense

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.

13

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 metal and obsolete scrap metal,
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 metal and other
purchased scrap metal, 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.

At certain of our locations 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.

14

RECENT DEVELOPMENTS

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 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"). On September
17, 2002, a Final Decree Motion was approved by the Bankruptcy Court which
officially closed our Chapter 11 proceedings. 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 $211.5 million of unsecured debt and other liabilities into common
stock, which strengthened our capitalization.

In connection with our emergence from bankruptcy, we reflected the terms of
the Plan in our unaudited consolidated financial statements by adopting
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
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 were
recorded in our unaudited consolidated financial statements as of June 30, 2001.
As used in this Report, the term "Predecessor Company" refers to our operations
for periods prior to the Effective Date, while the term "Reorganized Company"
refers to our operations for periods after the Effective Date.

In March 2002, the United States federal government 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
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 will result in 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 metal substitutes such as pig iron to satisfy their incremental raw
material requirements.

CRITICAL ACCOUNTING POLICIES

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 $1.1 million and $2.4 million at September 30,
15

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.

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 allowances for uncollectible
accounts receivable. While we believe our allowance for uncollectible accounts
receivable is adequate, changes in economic conditions or any significant
decline 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 our post-emergence NOL
carryforwards 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-emergence

16

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-emergence NOL carryforwards. The utilization of deferred tax assets,
including NOL carryforwards, and the financial statement accounting for these
tax benefits, including the estimated tax provision and effective rate, are
dependent upon the amounts and timing of future taxable income, statutory
restrictions and limitations, and our tax return filing elections. Changes in
our assumptions regarding these matters could impact future income tax expense.

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

For purposes of this discussion, the Reorganized Company's results for the
three months ended September 30, 2001 have been combined with the Predecessor
Company's results for the three months ended June 30, 2001 and are compared to
the Reorganized Company's results for the six months ended September 30, 2002.
Differences between periods due to fresh start reporting are explained when
necessary.

Net sales

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

17

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

Consolidated net sales increased by $35.8 million (22.8%) and $63.1 million
(19.5%) to $192.8 million and $386.3 million during the three and six months
ended September 30, 2002, respectively, compared to consolidated net sales of
$157.0 million and $323.2 million during the three and six months ended
September 30, 2001, respectively. 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 $32.9 million (36.2%) and $64.5 million (35.5%)
to $124.0 million and $246.4 million during the three and six months ended
September 30, 2002, respectively, compared to ferrous sales of $91.1 million and
$181.9 million during the three and six months ended September 30, 2001,
respectively. The increase in ferrous sales was attributable to strong market
demand and higher selling prices for ferrous products. Factors contributing to
the strong demand for ferrous products include increased domestic production
rates for finished and semi-finished steel and improved conditions for exporting
ferrous scrap.

Non-ferrous sales decreased by $1.9 million (3.6%) and $8.2 million (7.4%)
to $51.0 million and $102.8 million during the three and six months ended
September 30, 2002, respectively, compared to non-ferrous sales of $52.9 million
and $111.0 million during the three and six months ended September 30, 2001,
respectively. Our non-ferrous business has been impacted by weak conditions in
the aerospace and stainless steel markets as well as stagnant demand and pricing
for copper and aluminum. This has led to lower average realized sales prices
which have declined from the prior year. In addition, sales volume reflect the
loss of volumes associated with our former MacLeod operations in California,
which was discontinued in fiscal 2002 and completely ceased operations during
the three months ended June 30, 2002. Non-ferrous markets have not experienced
improvement and we expect non-ferrous markets to remain weak in the near-term.

Brokerage ferrous sales increased by $5.8 million (77.0%) and $9.6 million
(49.7%) to $13.2 million and $28.9 million during the three and six months ended
September 30, 2002, respectively, compared to brokerage ferrous sales of $7.4
million and $19.3 million during the three and six months ended September 30,
2001, respectively. The increase was primarily a result of higher average
selling prices and volumes. 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 metal are generally associated with higher unit
prices.

Brokerage non-ferrous sales decreased by $0.8 million (41.4%) and $2.1
million (51.0%) to $1.2 million and $2.0 million during the three and six months
ended September 30, 2002, respectively, compared to brokerage non-ferrous sales
of $2.0 million and $4.1 million during the three and six months ended September
30, 2001, respectively. The decrease was a result of lower volume and lower
average selling prices. 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. In the prior fiscal year, our former MacLeod operations generated
other revenue from the operation of aluminum can redemption centers. During the
six months ended September 30, 2002, other revenues decreased by

18

$0.8 million (11.4%) to $6.1 million. The decline is attributable to weakness in
stevedoring activities and, in part, to the exit from our MacLeod operations
during the three months ended June 30, 2002.

Gross profit

Gross profit was $24.8 million (12.9% of sales) and $53.1 million (13.7% of
sales) during the three and six months ended September 30, 2002, respectively,
compared to gross profit of $17.6 million (11.2% of sales) and $34.7 million
(10.7% of sales ) during the three and six months ended September 30, 2001,
respectively. Gross profit was higher as a result of increased material margins
on ferrous products sold and more efficient plant utilization which resulted in
lower per unit processing expenses. Processing expenses have remained
substantially unchanged from prior year levels; however, more volume was
processed through our yards during the current periods, which reduced per unit
processing costs.

General and administrative expenses

General and administrative expenses were $12.2 million (6.3% of sales) and
$23.6 million (6.1% of sales) during the three and six months ended September
30, 2002, respectively, compared to general and administrative expenses of $11.4
million (7.3% of sales) and $23.1 million (7.1% of sales) during the three and
six months ended September 30, 2001, respectively. The increase in general and
administrative expenses during the current fiscal year represents accruals
recorded in connection with an employee incentive compensation plan. The
compensation plan is measured by return on net assets. As a consequence of
strong performance from our ferrous businesses, we accrued $1.7 million during
the three months ended September 30, 2002 and $2.5 million during the six months
ended September 30, 2002 in connection with the employee incentive compensation
plan. Payments under the plan are subject to performance for the full fiscal
year and approval by the Compensation Committee of the Board of Directors.
Except for the accruals relating to our employee incentive compensation plan,
our general and administrative expenses have remained flat as we carefully
monitor our spending. This is evident as our general and administrative expenses
as a percent of sales are lower than the prior year periods.

Depreciation and amortization

Depreciation and amortization expense was $4.2 million (2.2% of sales) and
$8.6 million (2.2% of sales) during the three and six months ended September 30,
2002, respectively, compared to depreciation and amortization expense of $4.6
million (2.9% of sales) and $9.3 million (2.9% of sales) during the three and
six months ended September 30, 2001, respectively. Except for the elimination of
depreciation expense associated with the exit from our MacLeod operations,
depreciation expense has remained relatively constant.

Non-cash and non-recurring expenses

There were no non-cash and non-recurring expenses recognized during the
three and six months ended September 30, 2002. Non-cash and non-recurring
expense was $1.9 million during the six months ended September 30, 2001, which
primarily consisted of asset impairments for equipment to be disposed of or held
for sale.

Interest expense

Interest expense was $2.9 million (1.5% of sales) and $5.9 million (1.5% of
sales) during the three and six months ended September 30, 2002, respectively,
compared to interest expense of $3.4 million (2.2% of sales) and $8.6 million
(2.6% of sales) during the three and six months ended September 30, 2001,
respectively. The decrease in interest expense was a result of lower borrowings
and interest rates under our credit facilities. Our average borrowings under our
credit facilities during the three and six month periods ended September 30,
2002 were $26 million and $22 million, respectively, less than our average
borrowings under our credit facilities during the three and six month periods
ended September 30, 2001.

Our average interest rate on borrowings under credit facilities during the
three and six months ended September 30, 2002 was approximately 200 basis points
and 300 basis points, respectively, lower than our
19

average interest rate on borrowings under credit facilities during the three and
six month periods ended September 30, 2001. Interest expense during the six
months ended September 30, 2001 included three months of interest under our
debtor-in-possession credit agreement, which was at higher base interest rates
than the Credit Agreement governing our post-emergence bank borrowings.

Other income, net

During the three and six months ended September 30, 2002, we recognized
other income of $2.7 million and $2.8 million, respectively, consisting mainly
of a $2.6 million gain recognized on the sale of a parcel of real property.

Reorganization costs

During the three and six months ended September 30, 2001, we incurred
reorganization costs of $0.3 million and $10.6 million, respectively, which
mainly represented 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).

Income taxes

During the three and six months ended September 30, 2002, we recognized
income tax expense of $2.0 million and $4.3 million, respectively. The effective
tax rate differs from the statutory rate for the three and six months ended
September 30, 2002, due to the use of pre-emergence net deferred tax assets and
certain post-emergence NOL carryforwards. The use of pre-emergence net deferred
tax assets and NOL carryforwards results in no federal cash taxes being paid,
however, results in the recognition of income tax expense in accordance with SOP
90-7.

Change in accounting policy

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 six months
ended September 30, 2001.

Extraordinary gain

During the three months ended September 30, 2002, we recognized an
extraordinary gain, net of tax, of $0.2 million associated with the repurchase
of Junior Secured Notes. During the three months ended June 30, 2001, 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 2 to the unaudited consolidated financial statements
included in Item 1 of this Report).

Net income (loss)

Net income was $6.4 million and $13.7 million during the three and six
months ended September 30, 2002, respectively, compared to a net loss of $2.0
million and net income of $126.6 million during the three and six months ended
September 30, 2001, respectively. Net income, during the three and six months
ended September 30, 2002, reflects significant improvement in our operations as
a result of higher volumes of ferrous scrap metals sold, greater metal margins,
lower interest expense and gains on sale of fixed assets. Net income during the
six months ended September 30, 2001 was primarily a result of a $145.7 million
extraordinary gain associated with cancellation of indebtedness in the Chapter
11 proceedings.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

During the six months ended September 30, 2002, we generated $19.7 million
of cash from operating activities, comprised of net income and non-cash items of
$25.3 million offset by investments in working
20

capital of $5.6 million. The strong performance by our ferrous business
generated net income and also required working capital investments, primarily in
accounts receivable and inventories which increased by $5.1 million and $2.2
million, respectively. Accounts payable increased by $4.5 million as our
improved results and capitalization allowed us to obtain more favorable credit
terms from our vendors. 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.

During the six months ended September 30, 2002, we generated $2.4 million
of cash from investing activities. Purchases of property and equipment were $3.5
million, while we generated $5.9 million of cash from the sale of real estate
and redundant fixed assets.

During the six months ended September 30, 2002, our financing activities
used $21.6 million of cash. Cash generated from operating and investing
activities were used primarily to repay borrowings under the Credit Agreement.
In addition, we repurchased $1.1 million par amount of Junior Secured Notes for
approximately $0.9 million in cash.

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 on July 1, 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 $29.1 million as of September 30, 2002, which amortizes by $2.4
million on a quarterly basis and under certain other conditions. In addition, as
of September 30, 2002, supplemental availability of $3.6 million is provided,
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 for lenders under the Credit Agreement 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
September 30, 2002. As of November 7, 2002, we had outstanding borrowings of
approximately $83 million under the Credit Agreement and undrawn availability of
approximately $30 million.

21

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.

Our Junior Secured Notes mature on June 15, 2004 and bear interest at the
rate of 12 3/4% per annum. Interest on the Junior Secured Notes is payable
semi-annually during June and December of each year. The Junior Secured 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
Junior Secured Notes.

During the three months ended September 30, 2002, we repurchased $1.1
million par amount of Junior Secured Notes for approximately $0.9 million. We
used borrowings under our Credit Agreement to repurchase these Junior Secured
Notes. As of September 30, 2002, we have $32.8 million par amount of Junior
Secured Notes outstanding. Subject to lender approvals required under our Credit
Agreement and prevailing market prices for our Junior Secured Notes, we may
choose to repurchase additional amounts of Junior Secured Notes in the future.

The Junior Secured 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 Junior Secured 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 Junior
Secured Notes). We are required to redeem all or a portion of the Junior Secured
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, 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) merge 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 sales of property and equipment.
At September 30, 2002, we have $7.9 million of property and equipment classified
as "held for sale."

We are currently negotiating with our lenders to refinance the obligations
under the Credit Agreement. Based on these negotiations, we expect to enter into
a new facility with our lenders which will extend the maturity date by three
years until July 1, 2006. As a condition to that extension of credit, we will be
required to refinance our Junior Secured Notes. In connection with that
condition, we have retained a placement agent to seek $50.0 million of new
credit financing. In the event that we are unable to extend the maturity date of
the Credit Agreement or otherwise be unable to refinance the obligations under
the Credit Agreement before July 2003, the lenders could elect to not make loans
available to us and declare all amounts borrowed under the Credit Agreement to
be due and payable at maturity in July 2003.

Our future cash needs will be driven by working capital requirements
(including interest payments on the Junior Secured Notes), planned capital
expenditures and acquisition objectives, should attractive acquisition
opportunities present themselves. On December 15, 2002, we are required to make
a $2.1 million coupon payment on our Junior Secured Notes. Capital expenditures
were approximately $3.5 million during the six

22

months ended September 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, that we currently own, at our
facility in Phoenix, Arizona. We expect the "Mega" Shredder to be operational by
June 2003. In addition, due to favorable financing terms made available by
equipment manufacturing vendors, we have entered into operating leases for new
equipment. Since the beginning of the fiscal year, we have entered into nine
operating leases for equipment which would have cost approximately $2.9 million
to purchase. These operating leases are attractive to us since the implied
interest rates are lower than interest rates under our Credit Agreement. We
expect to selectively use operating leases for new equipment required by our
operations. In October 2002, we purchased certain scrap metal recycling related
assets for $3.2 million in cash. While we have no significant pending
acquisitions, we may choose to consider selective opportunities for "tuck-in"
acquisitions later in the current fiscal year.

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 September 30, 2002, $0.9
million has been accrued as a liability associated with these employment
contracts.

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. In the course of
operations of the scrap metals recycling facility, we have discovered certain
environmental conditions on the property which, if not resolved, may cause us
not to exercise the option to purchase the real property and otherwise cause us
to incur additional costs to relocate the facility.

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 set forth in APB Opinion No. 30. This statement is
effective for fiscal years beginning after May 15, 2002. Upon adoption of SFAS
No. 145, the extraordinary gain on the debt extinguishment recognized during the
three months ended September 30, 2002 and the extraordinary gain on debt
discharge recognized by the Predecessor Company during the three months ended
June 30, 2001, will be reclassified to other income in the our statement of
operations.

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 do not expect
the adoption of SFAS No. 146 to have a material impact on our consolidated
financial position, results of operations or cash flows.
23

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 unaudited 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.

ITEM 4: CONTROLS AND PROCEDURES

Within the ninety day period prior to the date of this report, we conducted
an evaluation under the supervision and with the participation of our
management, including Albert A. Cozzi, our Chief Executive Officer, and Robert
C. Larry, our Chief Financial Officer, regarding the effectiveness of the design
and operation of our disclosure controls and procedures as defined in Rule
13a-14 under the Securities Exchange Act of 1934 (the "Exchange Act"). Based
upon that evaluation, Messrs. Cozzi and Larry concluded that our disclosure
controls and procedures are effective to ensure that material information is
recorded, processed, summarized and reported within time periods specified in
the rules and forms of the Securities and Exchange Commission. There were no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date that they were
evaluated by our Chief Executive Officer or Chief Financial Officer.

24

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 on Form 10-K for a description of the litigation in which we are
currently involved.

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

Our Annual Meeting of Stockholders was held on September 18, 2002 in
Newark, New Jersey. At the meeting, our stockholders elected five members to our
board of directors pursuant to the following votes:

In addition to electing directors, our stockholders approved the following
actions:

(a) A proposal to approve the Metal Management, Inc. 2002 Stock Incentive
Plan by the vote of 3,312,011 in favor, 1,894,162 against, 13,338 abstentions
and 869,879 broker non-votes; and

(b) A proposal to approve the appointment of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending March 31, 2003 by the vote of
6,078,249 in favor, 7,500 against and 3,641 abstentions.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

See Exhibit Index

(B) REPORTS ON FORM 8-K

Current Report on Form 8-K, dated as of August 13, 2002 -- Regulation of
Financial Disclosure, dated August 13, 2002.

25

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: November 11, 2002

26

CERTIFICATIONS

I, Albert A. Cozzi, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Metal Management,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

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

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

Date: November 11, 2002

27

I, Robert C. Larry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Metal Management,
Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

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

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

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

/s/ ROBERT C. LARRY
--------------------------------------
Robert C. Larry
Executive Vice President, Finance and
Chief
Financial Officer

Date: November 11, 2002

28

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).
10.1 Employment Agreement, dated July 1, 2001 between Robert C.
Larry and the Company.
10.2 Metal Management, Inc. 2002 Incentive Stock Plan
(incorporated by reference to Exhibit 99.1 of the Company's
Registration Statement on Form S-8, filed on October 24,
2002).
99.1 Certification of Chief Executive Officer pursuant to 18 USC
27 Section 1350 as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 USC
29 Section 1350 as adopted pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002.