METAL MANAGEMENT INC - 10-K Annual Report

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

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2003

[ ] 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 NORTH DEARBORN ST., SUITE 405,
CHICAGO, IL 60610
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (312) 645-0700

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
SERIES A WARRANTS (EXPIRATION DATE JUNE 29, 2006)
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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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

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 September 30, 2002, the aggregate market value of voting stock held
by non-affiliates of the registrant was approximately $21.0 million.

As of May 14, 2003, the registrant had 10,152,631 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

We expect to file a definitive proxy statement no later than July 29, 2003.
Portions of such proxy statement are incorporated by reference into Part III of
this annual report on Form 10-K.
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METAL MANAGEMENT, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2003
TABLE OF CONTENTS

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

PART I

ITEM 1. BUSINESS

GENERAL

We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 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. ("Southern"), one of the largest scrap metals recyclers in the
Gulf Coast region. Our operations primarily involve 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. In addition to buying,
processing and selling ferrous and non-ferrous scrap metals, we are periodically
retained as demolition contractors in certain of our large metropolitan markets
in which we dismantle obsolete machinery, buildings and other structures
containing metal and, in the process, collect both the ferrous and non-ferrous
metals from these sources. At certain of our locations adjacent to commercial
waterways, we provide stevedoring services. We also operate a bus dismantling
business combined with a bus replacement parts business at our Northeast
operations.

We believe that we provide one of the most comprehensive product offerings
of both ferrous and non-ferrous scrap metals. Our ferrous products primarily
include shredded, sheared, cold briquetted, bundled 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 certain large regional 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, enhanced purchasing power
and increased economies of scale.

RECENT DEVELOPMENTS

On May 23, 2003, we amended our $115 million credit agreement to extend the
maturity date to June 7, 2004. We paid a fee of approximately $0.3 million for
this amendment.

On January 30, 2003, we announced that we received a subpoena requesting
that we provide documents to a grand jury that is investigating scrap metal
purchasing practices in the four state region of Ohio, Illinois, Indiana and
Michigan. We are fully cooperating with the subpoena and the grand jury's
investigation. To date,
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we have incurred approximately $0.2 million of legal fees associated with
responding to the subpoena. We are not able at this preliminary stage to
determine future legal costs or other costs to be incurred by us in responding
to such subpoena or other impact to us of such investigation.

In October 2002, we acquired certain assets of a scrap metals recycling
company for $3.3 million in cash (including transaction costs). This represented
the first acquisition made by us in over three years and, consistent with our
strategy, the acquisition was a "tuck-in" into one of our existing platforms.
Although we have no other significant pending acquisitions, we may choose to
pursue other acquisitions in the future. We believe that as a result of our
improved financial results and liquidity, we are well positioned to take
advantage of future acquisition opportunities, if they become available on
reasonable terms.

In March 2002, the United States federal government ("U.S.") determined
that it would impose tariffs on imports of steel in response to surging steel
imports that caused many U.S. steel mills to file for bankruptcy protection. The
tariffs apply to steel imports from many countries and the tariffs range from 8%
to 30%. The tariffs are staged in over three years. The tariffs vary by product
category based on the extent of the damage caused by import surges to different
segments of the steel industry. Generally, the tariffs decline over the
three-year term of the new trade laws. The tariffs are expected to provide
temporary relief to U.S. steel producers and encourage both additional
production of steel in the U.S. and in the longer term cause a restructuring of
the steel industry from a global supply perspective both domestically and
globally. 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 greater amounts of steel domestically. As a result,
we believe that the tariffs may result in an increased demand for scrap metals
in order to produce more steel in the U.S. It is uncertain however, if domestic
production of steel is increased as a consequence of the tariffs, whether U.S.
steel producers will seek to purchase the incremental raw material requirements
from domestic processors of scrap metals or from other international markets.
Additionally, domestic steel producers may choose to increase their consumption
of scrap substitutes such as pig iron or other scrap substitutes to satisfy any
incremental raw material requirements.

INTEGRATION AND BRANDING INITIATIVES

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

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

INDUSTRY OVERVIEW

According to the Institute of Scrap Recycling Industries, the scrap metals
recycling industry is a $20 billion industry. According to the U.S. Geological
Survey, an estimated 72 million metric tons of steel was recycled in steel mills
and foundries in 2002. Although significant consolidation has occurred in the
scrap metals industry during the past several years, the scrap metals industry
remains highly fragmented. We believe the scrap metals industry is comprised of
more than 3,000 independent metals recyclers. Many of these companies are
family-owned and operate only in local or regional markets. We believe that no
single scrap

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metals recycler has a significant share of the domestic market, although certain
recyclers may have significant shares of their local or regional markets.

Ferrous Scrap Industry

Ferrous scrap, used in most steel making processes, is the primary raw
material for mini-mill steel producers that utilize electric arc furnace, or
EAF, technology. Ferrous scrap is also utilized in the production of steel by
integrated steel producers although to a lesser degree than EAF producers.
Ferrous scrap sells as a commodity in international markets which are affected
by varying economic conditions, fluctuating currencies, and the availability of
ocean-going vessels and their related costs. By way of example, in calendar
2001, there was an increase in scrap imports by the U.S. from Europe and reduced
export opportunities for scrap metals from the United States as a result of a
strong U.S. dollar. In calendar 2002, the scrap export opportunities increased
as a result of, among other factors, the weakening U.S. dollar. Additionally,
demand for processed ferrous scrap is highly dependent on the overall strength
of the domestic steel industry, particularly production utilizing EAF
technology. Weak industry conditions caused declines in both pricing and demand
for ferrous scrap from mid-1998 to 2001. As a consequence of improved levels of
steel production in the U.S. coupled with robust export markets for ferrous
scrap, our ferrous metals business has improved. However, ferrous prices can
fluctuate greatly from month to month affecting our results.

Much of the growth in the scrap metals industry in recent years has
occurred as a result of the proliferation of mini-mill steel producers which
utilize EAF technology. According to the U.S. Geological Survey, EAF production
as a percentage of total domestic steel production has increased from 38% in
1991 to 51% in 2002. We expect that EAF processors will increase their market
share prospectively. We believe that as a large, reliable supplier of scrap
metals, we are well positioned to benefit from the growth in steel market share
associated with EAF production.

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

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

Non-Ferrous Scrap Industry

Non-ferrous metals include aluminum, copper, brass, stainless steel,
titanium, high-temperature alloys and other exotic metals. The geographic
markets for non-ferrous scrap tend to be larger than those for ferrous scrap due
to the higher selling prices of non-ferrous metals, which justify the cost of
shipping over greater distances. Non-ferrous scrap is typically sold on a spot
basis, either directly or through brokers, to intermediate or end-users, which
include smelters, foundries and aluminum sheet and ingot manufacturers. Prices
for non-ferrous scrap are driven by demand for finished non-ferrous metal goods
and by the general level of economic activity, with prices generally linked to
the price of the primary metal on the London Metals Exchange or COMEX. Suppliers
and consumers of non-ferrous metals can also use these exchanges to hedge
against future price fluctuations by buying or selling futures contracts.

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

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

RECYCLING OPERATIONS

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

Ferrous Operations

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

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

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

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

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

Baling. We process light-gauge ferrous metals such as clips and sheet
iron, and by-products from industrial manufacturing processes, such as
stampings, clippings and excess trimmings, by baling these

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materials into large, uniform blocks. We use cranes, front-end loaders and
conveyors to feed the metal into hydraulic presses, which compress the
materials into uniform blocks at high pressure.

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

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

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

Non-Ferrous Operations

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

A number of factors can influence the continued availability of non-ferrous
scrap such as the level of manufacturing activity and the quality of our
supplier relationships. Consistent with industry practice, we have certain
long-standing supply relationships which generally are not the subject of
written agreements.

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

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

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

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

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stainless steel stampings to produce large bales of aluminum or stainless
steel. Smaller pieces of aluminum and stainless steel are repackaged to
meet customer specifications.

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

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

SEASONALITY AND OTHER CONDITIONS

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

EMPLOYEES

At March 31, 2003, we had 1,471 employees, 729 of whom were covered by
collective bargaining agreements. A strike or work stoppage could impact our
ability to operate if we were unable to negotiate new agreements with our
represented employees. Also, our profitability could be adversely affected if
increased costs associated with any future contracts are not recoverable through
productivity improvements, price increases or cost reductions. We believe that
we have good relations with our employees.

CAPITAL EXPENDITURES

The scrap metals recycling business is capital intensive. In fiscal 2003,
we invested approximately $8.5 million for replacement of equipment and
expansion of our operations. We currently expect to spend between $12 million
and $16 million in capital expenditures including those to improve environmental
control systems during fiscal 2004.

SIGNIFICANT CUSTOMERS

In fiscal 2003, our 10 largest customers represented approximately 41% of
consolidated net sales. These customers comprised approximately 49% of
consolidated accounts receivable at March 31, 2003. Sales to The David J. Joseph
Company, our largest customer and an agent for Nucor Corporation and certain
other mills, represented approximately 15% of our consolidated net sales in
fiscal 2003. The loss of any one of our significant customers could have a
material adverse effect on our results of operations and financial condition.

We historically have not experienced material losses from the noncollection
of accounts receivables. However, from April 2000 to March 2002, weak market
conditions in the steel sector led to bankruptcy filings by certain of our
customers including, but not limited to, LTV Steel Company, Inc. and
Northwestern Steel and Wire Company. These bankruptcy filings by our customers
resulted in uncollected receivables of approximately $8 million.

EXPORT SALES

In fiscal 2003, export sales represented approximately 14% of consolidated
net sales. At March 31, 2003, receivables from foreign customers represented
approximately 3% of consolidated accounts receivable.

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COMPETITION

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

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

BACKLOG

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

PATENTS AND TRADEMARKS

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

CHAPTER 11 FILING AND EMERGENCE

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

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 $211.9 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 audited 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 audited consolidated financial statements as of June 30, 2001.
As used in

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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.

AVAILABLE INFORMATION

We make available, free of charge, through our website, among other things,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports as soon as reasonably practicable
after they have been electronically filed with the Securities and Exchange
Commission. These reports can be obtained by accessing our website at
www.mtlm.com. Please note that our Internet address is included in this annual
report on Form 10-K as an inactive textual reference only. Information contained
on our website is not incorporated by reference into this annual report on Form
10-K and should not be considered a part of this report.

RISK FACTORS

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

We are highly leveraged.

As of March 31, 2003, we had $89.6 million of debt outstanding. Subject to
certain restrictions, exceptions and financial tests set forth in certain of our
debt instruments (see Risk Factor "Our indebtedness contains covenants that
restrict our ability to engage in certain transactions"), we may incur
additional indebtedness in the future. The degree to which we are leveraged
could have important negative consequences to the holders of our securities,
including the following:

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

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

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

- we are vulnerable to higher interest rates because interest expense on
borrowings under our $115 million credit agreement due June 7, 2004 (the
"Credit Agreement") are based on interest rates equal to a base rate that
is variable.

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

Our Credit Agreement and Junior Secured Notes become due in June 2004 and we
may be unable to find replacement financing.

Our Credit Agreement expires on June 7, 2004. Our 12 3/4%, $31.5 million
secured notes (the "Junior Secured Notes") mature on June 15, 2004. In order for
us to repay our obligations under the Junior Secured Notes, we will be required
to either obtain alternative financing or renew or extend our Credit Agreement.
Although we expect to be able to renew the Credit Agreement prior to June 2004,
there is no assurance that this will be the case. If we cannot renew our Credit
Agreement, we may be required to seek alternative financing for our working
capital needs and to retire the Junior Secured Notes. The terms on which we may
be able to obtain replacement financing may not be as favorable as under the
Credit Agreement or the Junior Secured Notes which could increase borrowing
costs, result in adverse changes to covenants, and may cause dilution to holders
of our common stock. If we are not able to extend or renew our Credit Agreement
and cannot obtain alternative financing, we will not be able to generate
sufficient cash flows from operations to satisfy all of our obligations as they
mature in fiscal 2005.
8

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

Our Credit Agreement and the indenture governing our Junior Secured Notes
contain covenants that, among other things, restrict our ability to:

- incur additional indebtedness;

- pay dividends;

- prepay subordinated indebtedness;

- dispose of some types of assets;

- make capital expenditures;

- create liens and make acquisitions; and

- engage in some fundamental corporate transactions.

Under our Credit Agreement, we are required to satisfy specified financial
covenants, including an interest coverage ratio of 2.10 to 1.00 and a leverage
ratio of 4.25 to 1.00 (each for the twelve month period ending each fiscal
quarter).

Although we expect to be able to achieve these financial covenants, our
ability to comply with these covenants may be affected by general economic
conditions, industry conditions, and other events beyond our control. Our breach
of any of these covenants could result in a default under our Credit Agreement.
In the event of a default, the lenders could elect to declare all amounts
borrowed under our Credit Agreement, together with accrued interest, to be due
and payable. In addition, a default under the indenture governing our Junior
Secured Notes would constitute a default under our Credit Agreement and possibly
other instruments governing our other indebtedness.

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

The bankruptcy may have created a negative image of us.

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

The metals recycling industry is highly cyclical and export markets can be
volatile.

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

Our business may also be adversely affected by increases in steel imports
into the United States which will generally have an adverse impact on domestic
steel production and a corresponding adverse impact on the demand for scrap
metals. Additionally, our business could be negatively affected by strengthening
in the U.S.
9

dollar. For example, beginning in July 1998, the domestic steel industry and, in
turn, the metals recycling industry suffered a dramatic and precipitous
collapse, resulting in a significant decline in the price and demand for scrap
metals. The decline in the steel and scrap metal sectors was the result, in
large part, of the increase in steel imports flowing into the United States
during the last six months of 1998 and our results of operations were adversely
impacted by reduced steel production in the United States during fiscal 1999.
Export markets, including Asia and in particular China, are important to us.
Weakness in economic conditions in Asia and in particular slowing growth in
China could negatively affect us.

During fiscal 2001, our business was adversely affected by slowing
economies and a strong U.S. dollar. The slowing domestic economy caused
operating rates at U.S. steel producers to decline. Consequently, our unit sales
declined and precluded us from generating sufficient margins to cover our fixed
charges, causing substantial losses. The strong dollar not only precluded us
from exporting scrap metal, but also served as a mechanism that attracted scrap
metal to the United States from other countries which further depressed prices
for our products in the U.S.

During most of fiscal 2002, our business was negatively affected by our
bankruptcy, the recession in the U.S. and a slowdown in industrial production.
In January 2002, our ferrous business began to demonstrate a recovery and has
remained strong through fiscal 2003. Ferrous markets improved as a result of
increased demand from domestic and international steel mills. However, the
slowdown in industrial production has impacted our purchases of industrial scrap
which also limits sales and profitability.

While ferrous markets improved in fiscal 2003, our non-ferrous business,
including stainless steel, wire chopping and high-temperature alloy businesses,
still continues to be weak. Stainless steel and hi-temperature alloy markets are
still impacted by a slow-down in the aerospace business (after the events of
September 11, 2001). Our wire chopping business continues to experience weak
margins due to competition for buying copper in the U.S. from China. Chinese
companies are able to process copper at much lower costs than domestic wire
choppers. As a consequence of that condition, in December 2001, we exited our
wire-chopping business in California. We are currently operating one
wire-chopping line in Birmingham, Alabama.

Prices of commodities we own may be volatile.

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

- general economic conditions;

- labor costs;

- competition;

- financial condition of our major customers;

- the availability of imports;

- the availability and relative pricing of scrap metal substitutes;

- import duties; and

- tariffs and currency exchange rates.

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

Our operations present significant risk of injury or death.

Because of the heavy industrial activities conducted at our facilities,
there exists a risk of injury or death to our employees or other visitors of our
operations, notwithstanding the safety precautions we take. During
10

fiscal 2001 through fiscal 2003, two accidental employee deaths occurred through
transportation related accidents and a number of other serious accidental
injuries have occurred at our facilities. Our operations are subject to
regulation by federal, state and local agencies responsible for employee health
and safety, including the Occupational Safety and Health Administration
("OSHA"). We, or our Predecessor Company, have been fined in regard to some of
these incidents. While we have in place policies to minimize such risks, we may
nevertheless be unable to avoid material liabilities for any employee death or
injury that may occur in the future and these types of incidents may have a
material adverse effect on our financial condition.

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

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

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

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

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

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

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

Sales to our ten largest customers represented approximately 41% of
consolidated net sales in fiscal 2003. Accounts receivable balances from these
customers comprised approximately 49% of consolidated accounts receivable at
March 31, 2003. Sales in fiscal 2003 to The David J. Joseph Company represented
approximately 15% of consolidated net sales. The loss of any of our significant
customers or our inability to collect accounts receivables would negatively
impact our revenues and profitability.

The loss of export sales could adversely affect our results of operations or
financial condition.

Export sales accounted for 14% of consolidated net sales in fiscal 2003.
Risks associated with our export business includes, among other factors,
political and economic instability, economic conditions in the world's economies
including potential effects associated with severe acute respiratory syndrome,
changes in legal and regulatory requirements, the value of the U.S. dollar
(variations to which will impact the amount and volume of export sales), and
collection risks in some cases (such as Mexican steel mills where we extend open
credit).

11

Any of these factors could result in lower export sales which may materially
adversely affect our results of operations and financial condition.

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

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

During the weakening cycle for the steel business evident in fiscal 2001,
there were bankruptcies filed by many large steel producers. In particular, our
results were adversely affected by the bankruptcies of LTV Steel Company, Inc.
and Northwestern Steel and Wire Company. From April 2000 to March 2002,
bankruptcy filings by our customers resulted in uncollected receivables of
approximately $8 million. While we have made significant efforts to improve the
monitoring of credit exposure to our customers, we may experience further
losses, as conditions in the metals sector generally remain weak.

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

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

Our defined benefit pension plans are underfunded.

We currently maintain four defined benefit pension plans which cover
various categories of employees and retirees. Our obligations to make
contributions to fund benefit obligations under these plans are based on
actuarial valuations which are based on certain assumptions, including the
long-term return on plan assets and interest rates. Due to declining equity
markets that have caused negative returns in our pension plan assets, and the
low interest rate environment, our defined benefit pension plans are underfunded
by $3.9 million at March 31, 2003. As a result, we will have to make additional
contributions in the foreseeable future until our defined benefit pensions are
funded in accordance with ERISA guidelines. This will negatively impact our cash
flow and results of operations.

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

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

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

- the discharge of materials into air;

- the management and treatment of wastewater and storm water;

- the remediation of soil and groundwater contamination;

- the restoration of natural resource damages; and

- the protection of our employees' health and safety.

We believe that our subsidiaries and we are currently in material
compliance with applicable statutes and regulations governing the protection of
human health and the environment, including employee health and
12

safety. We can give you no assurance, however, that our subsidiaries and we will
continue to be in compliance, avoid material fines, penalties and expenses
associated with compliance issues in the future.

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

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

We are required to obtain, and must comply with, various permits and
licenses to conduct our operations. Violations of any permit or license, if not
remedied, could result in our incurring substantial fines, suspension of
operations or closure of a site. Further, our operations are conducted primarily
outdoors and as such, depending on the nature of the ground cover, involve the
risk of releases of regulated materials to the soil and, possibly, to
groundwater. From time to time, as part of our continuous improvement programs,
we incur costs to improve environmental control systems. By way of example, we
may decide to install water pollution control equipment at our North Haven,
Connecticut facility to address certain concerns raised by the Connecticut
Department of the Environment in the lawsuit filed by that agency, which is
discussed below in Item 3 -- Legal Proceedings.

Because the scrap metals recycling industry has the potential for
discharging regulated materials into the environment, we believe that in any
given year, a significant portion of our capital expenditures may be related,
directly or indirectly, to pollution control or environmental remediation.
Nevertheless, expenditures for environmentally-related capital improvements were
not material in fiscal 2003 nor are they currently expected to be significant in
fiscal 2004. However, for the reasons explained above, there can be no assurance
that this will continue to be the case in the future.

We lack environmental impairment insurance. In general, we do not carry
environmental impairment liability insurance because the cost of the premiums
outweighs the benefit of coverage. If we or one or more of our subsidiaries were
to incur significant liability for environmental damage, such as a claim for
soil or groundwater remediation, not covered by environmental impairment
insurance, our results of operations and financial condition could be materially
and adversely affected.

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

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

13

our ability to sell our properties, and, will generally require us to incur
significant costs to take advantage of selling opportunities.

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

We typically make cash outlays as we incur the actual costs or capital
expenditures relating to the remediation of environmental liabilities at sites
that we own or operate. In this regard, we have established an overall reserve
of $0.2 million at March 31, 2003 for environmental remediation liabilities that
have been identified and quantified.

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

Although recent amendments to the Superfund law have limited the exposure
of scrap metal recyclers under Superfund for sales of recyclable material, we
can provide no assurance that we will not become liable in the future for
significant costs associated with the investigation and remediation of Superfund
sites. The only Superfund site in which we are currently involved as a
potentially responsible party is the Jack's Creek Superfund site in
Pennsylvania. As part of the Chapter 11 proceedings, we agreed to pay the Jack's
Creek PRP Group approximately $153,000 (of which only approximately $77,000
remains to be paid) to resolve our involvement in this Superfund site.

Our Predecessor Company has a history of significant losses.

From fiscal 1996 to 2001, the Predecessor Company incurred annual pre-tax
losses. At June 29, 2001, prior to the application of fresh-start reporting, the
Predecessor Company had an accumulated deficit of $477.7 million. Although this
accumulated deficit was eliminated effective June 30, 2001, we cannot assure you
that we will not incur losses in the future.

Our common stock has a limited trading history on Nasdaq.

On March 7, 2003, our common stock began trading on the Nasdaq SmallCap
Market. Prior to then, our common stock traded on the OTC Bulletin Board where
there was a very limited trading market. Although a limited trading market has
developed for our common stock, it may be subject to disruptions that will make
it difficult or impossible for the holders of our common stock to sell shares at
a time or a price they would like, and they may be unable to sell them at all.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies
have experienced declines that have not necessarily been related to the
operating performance or prospects of such companies.

ITEM 2. PROPERTIES

Our facilities generally are comprised of:

- processing areas;

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

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

14

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

- scales for weighing scrap;

- loading and unloading facilities; and

- administrative offices.

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

The following table sets forth information regarding our principal
properties:

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

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in various litigation matters involving
ordinary and routine claims incidental to our business. A significant portion of
these matters result from environmental compliance issues and workers
compensation related claims applicable to our operations. Management currently
believes that the ultimate outcome of these proceedings, individually and in the
aggregate, will not have a material adverse effect on our results of operations
or financial condition. We are involved in the litigation as described below.

Connecticut DEP v. Metal Management Connecticut, Inc. ("MTLM-Connecticut")

On July 1, 1998, our subsidiary MTLM-Connecticut acquired the scrap metal
recycling assets of Joseph A. Schiavone Corp. (formerly known as Michael
Schiavone & Sons, Inc.). The acquired assets include real property in North
Haven, Connecticut upon which our scrap metal recycling operations are currently
performed (the "North Haven Facility"). The owner of Joseph A. Schiavone Corp.
was Michael Schiavone ("Schiavone").

On March 31, 2003, the Connecticut DEP filed suit against Joseph A.
Schiavone Corp., Schiavone, and MTLM-Connecticut in the Superior Court of the
State of Connecticut -- Judicial District of Hartford. The suit alleges, among
other things, that the North Haven Facility discharged and continues to
discharge contaminants, including oily material, into the environment and has
failed to comply with the terms of certain permits and other filing
requirements. The suit seeks injunctions to restrict us from maintaining
discharges and to require us to remediate the facility. The suit also seeks
civil penalties from all of the defendants in accordance with Connecticut
environmental statutes. At this stage, we are not able to predict our potential
liability in connection with this action or any required investigation and/or
remediation. We believe that we have meritorious defenses to certain of the
claims asserted against us in the suit and intend to vigorously defend ourselves
against the claims. In addition, we believe that we are entitled to
indemnification from Joseph A. Schiavone Corp. and Schiavone for some or all of
the obligations and liabilities that may be imposed on us in connection with
this matter under the various agreements governing our purchase of the North
Haven Facility from Joseph A. Schiavone Corp. We cannot provide assurances that
Joseph A. Schiavone Corp. and Schiavone will have sufficient resources to fund
any or all indemnifiable claims that we may assert.

16

USEPA v. Metal Management Midwest, Inc. ("MTLM-Midwest")

Our subsidiary, MTLM-Midwest, operates seven facilities in the Chicago area
(the "MMMI Facilities") which were the subject of a series of inspections and
document requests in the mid-1990s by, among other agencies, the United States
Environmental Protection Agency ("USEPA") pursuant to the so-called Greater
Chicagoland Initiative to perform multimedia and multi-agency inspections of
scrap yards in the Chicago Area (the "USEPA Initiative"). As a result of the
USEPA Initiative, USEPA alleged that certain of the MMMI Facilities had violated
certain provisions of the Resource Conservation and Recovery Act, the Clean Air
Act, the Clean Water Act, the Oil Pollution Standards and the Toxic Substances
Control Act (collectively, the "Alleged Violations"). In the summer of 2001,
USEPA filed proofs of claims in our Chapter 11 proceedings and a cause of action
in the U.S. District Court for the Northern District of Illinois (the "Northern
District Action") seeking a penalty of between $25,000 and $27,500 per day for
each alleged violation. We moved to dismiss the Northern District Action on,
among other grounds, that it was duplicative of the claims filed in the Chapter
11 proceedings. We also challenged the claims filed in the Chapter 11
proceedings with respect to the Alleged Violations on both substantive and
procedural grounds.

In January 2003, we entered into a Consent Decree with USEPA, pursuant to
which, without admitting liability with respect to the Alleged Violations, we
agreed (i) to distribute to USEPA an allowed class 6 unsecured claim in our
Chapter 11 proceedings which will be satisfied through the issuance of shares of
our common stock out of a litigation reserve established for that purpose in
accordance with our plan of reorganization, and (ii) to perform environmental
compliance audits at several of our MMMI facilities. The shares issuable to the
USEPA in the Consent Decree are included as a component of the 9,900,000 shares
of common stock allocated in the Plan to Class 6 Creditors. The Consent Decree
with respect to this matter remains subject to a thirty (30 days) public notice
(through June 8, 2003) and comment before it becomes final.

Chapter 11 Bankruptcy Filing

On November 20, 2000, we filed voluntary petitions (Case Nos.
00-4303-00-4331 (SLR)) under Chapter 11 of the U.S. Bankruptcy Code with the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). We emerged from bankruptcy on June 29, 2001. On September 17, 2002, a
Final Decree Motion was approved by the Bankruptcy Court, which officially
closed our Chapter 11 proceedings.

Department of Justice Subpoena

In January 2003, we received a subpoena requesting that we provide
documents to a grand jury that is investigating scrap metal purchasing practices
in the four state region of Ohio, Illinois, Indiana and Michigan. We have
advised the government that we intend to cooperate fully with the subpoena and
the grand jury's investigation. To date, we have incurred approximately $0.2
million of legal fees associated with responding to the subpoena. We are not
able at this preliminary stage to determine future legal costs or other costs to
be incurred by us in responding to such subpoena or other impact to us of such
investigation.

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

No matters were submitted to our shareholders during the fourth quarter of
fiscal 2003.

17

PART II

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

On March 7, 2003, our common stock commenced trading on the Nasdaq SmallCap
Market under the symbol "MTLM." From November 19, 2001 to March 6, 2003, our
common stock traded on the OTC Bulletin Board under the symbol "MLMG." Although
we emerged from bankruptcy on June 29, 2001, distributions of common stock
pursuant to the Plan were not made until October 2001 and trading of our common
stock did not occur until November 19, 2001. The common stock of the Predecessor
Company was listed on the Nasdaq SmallCap Market until December 28, 2000. From
December 28, 2000 to July 3, 2001, the common stock of the Predecessor Company
traded on the OTC Bulletin Board under the symbol "MTLMQ."

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

As of May 14, 2003, we had 1,394 registered shareholders based on our
transfer agent's records. On May 14, 2003, the closing price per share of our
common stock as reported on the Nasdaq SmallCap Market was $9.57 per share.

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

We did not make any unregistered sales of our common stock during fiscal
2003.

18

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for each of the three years in the
period ended March 31, 2001, the three months ended June 30, 2001, the nine
months ended March 31, 2002 and the year ended March 31, 2003 are derived from
our or our Predecessor Company's audited consolidated financial statements. The
information presented below should be read in conjunction with the consolidated
financial statements and the related notes included in this report and the
section called "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected financial data presented below is not
necessarily indicative of the future results of our operations or financial
performance.

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

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

(b) Non-cash and non-recurring expense (income) consist of the following items
(in thousands):

- ---------------
(c) Fiscal 2003 includes $3.3 million of gains recognized on the sale of two
parcels of redundant real estate.

(d) The extraordinary charge incurred in fiscal 1999 relates to prepayment
penalties, fees, and other costs incurred to refinance debt, net of related
income tax benefit. The extraordinary gain recognized during the three
months ended June 30, 2001 relates to the discharge of indebtedness in
accordance with the Plan. The extraordinary gain recognized during fiscal
2003 relates to the purchase of $2.4 million par amount of Junior Secured
Notes for $1.8 million in cash. Income taxes of $0.2 million were recorded
against the extraordinary gain. In accordance with SFAS No. 145, "Rescission
of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections," in fiscal 2004 these amounts will be reclassified to other
income in our statement of operations.

(e) Fiscal 2000 includes $1.2 million in special dividends paid in connection
with the redemption of $5.0 million principal amount of Series A and Series
B convertible preferred stock.

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

20

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

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

The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to our results of
operations and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
included in Part IV, Item 16 of this 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. ("Southern"), one of the largest scrap metals recyclers in the
Gulf Coast region. Our operations primarily involve 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. In addition to buying,
processing and selling ferrous and non-ferrous scrap metals, we are periodically
retained as demolition contractors in certain of our large metropolitan markets
in which we dismantle obsolete machinery, buildings and other structures
containing metal and, in the process, collect both the ferrous and non-ferrous
metals from these sources. At certain of our locations adjacent to commercial
waterways, we provide stevedoring services. We also operate a bus dismantling
business combined with a bus replacement parts business at our Northeast
operations.

We believe that we provide one of the most comprehensive product offerings
of both ferrous and non-ferrous scrap metals. Our ferrous products primarily
include shredded, sheared, cold briquetted, bundled 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 certain large regional 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, enhanced purchasing power
and increased economies of scale.

CHAPTER 11 BANKRUPTCY AND PLAN OF REORGANIZATION

On November 20, 2000, we filed voluntary petitions (Case Nos.
00-4303-00-4331 (SLR)) under Chapter 11 of the U.S. Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). During the course of the bankruptcy
proceedings,
21

which we refer to as the "Chapter 11 proceedings" herein, we operated our
businesses as debtors-in-possession. The bankruptcy filing resulted from a
sequence of events stemming primarily from significant operating losses and
decreased liquidity experienced during fiscal 2001, which culminated in our
Predecessor Company's inability to make a $9 million interest payment on its 10%
Senior Subordinated Notes, due May 2008 (the "Subordinated Notes") on November
15, 2000. Our Predecessor Company's operating results and the resulting decrease
in liquidity were primarily due to unprecedented cycles of declines in prices
and demand for scrap metals exacerbated by high levels of fixed costs associated
with our Predecessor Company's highly leveraged capital structure.

On May 4, 2001, in furtherance of an agreement we had reached with holders
of a significant percentage of our Predecessor Company's pre-petition debt prior
to the initiation of the Chapter 11 proceedings, we filed a 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"). On September 17, 2002, a Final Decree Motion was
approved by the Bankruptcy Court, which officially closed our Chapter 11
proceedings.

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 and
should be read together with the entire Plan in order to understand all of the
terms of the Plan. The Plan, which is Exhibit A to our Disclosure Statement, has
been filed as an exhibit to this report and is incorporated by reference herein.
The Plan provided for, among other things, the following:

- Junior Secured Note Claims -- the holders of the Predecessor Company's
$30 million par amount, 12 3/4% junior secured notes due June 15, 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
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 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 were otherwise
deemed under the Plan to have elected) to be treated as an allowed Class
6 Claim, received a total of 9,900,000 shares of common stock of the
Reorganized Company. The total amount of Class 6 Claims aggregated
approximately $211.9 million.

- Preferred Stockholder and Common Stockholder Claims ("Equity
Claims") -- the holders of the Predecessor Company's convertible
preferred stock received their pro-rata share of 7,300 shares of common
stock of the Reorganized Company and warrants (designated as "Series A
Warrants") to purchase 54,750 shares of common stock of the Reorganized
Company. The holders of the Predecessor Company's common stock received
their pro-rata share of 92,700 shares of common stock of the Reorganized
Company and Series A Warrants to purchase 692,750 shares of common stock
of the Reorganized Company. The Series A Warrants are immediately
exercisable at an exercise price equal to $21.19 per share.

- Pursuant to the Management Equity Incentive Plan that was approved under
the Plan, we 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").

As of June 30, 2001, we adopted fresh-start reporting in accordance with
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." Under fresh-

22

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, 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

Our discussion and analysis of our 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 our 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. Revenue relating to brokered sales are recognized upon receipt of
the materials by the customer. Revenues from services, including stevedoring and
tolling, are recognized as they are performed. 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 $1.0 million and $2.4 million at March 31, 2003 and 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 the accounts, changes in collection patterns and general industry
conditions.

As indicated in the section entitled "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 is
adequate, changes in economic conditions or any weakness in the steel and metals
industry could adversely impact our future earnings.

Inventory

Our inventories primarily consist of ferrous and non-ferrous scrap metals
and are valued at the lower of average purchased cost or market. Quantities of
inventories are determined based on our inventory systems and are subject to
periodic physical verification using estimation techniques including
observation, weighing and other industry methods. As indicated in the section
entitled "Risk Factors -- Prices of commodities we
23

own may be volatile," we are exposed to risks associated with fluctuations in
the market price for both ferrous and non-ferrous metals, which are at times
volatile. We attempt to mitigate this risk by seeking to rapidly turn our
inventories.

Valuation of long-lived assets and goodwill

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

Effective June 30, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which
requires that the goodwill we recorded in connection with fresh-start reporting
be reviewed at least annually for impairment based on the fair value method. At
March 31, 2003, we determined, based on current industry information and other
market information, that no impairment existed.

Self-Insured Reserves

We are self-insured for medical claims for most of our employees. Our
exposure to medical claims is protected by a stop-loss insurance policy. We
record a reserve for reported but unpaid claims and 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. Effective April 1, 2003, we are self-insuring for workers'
compensation claims. We have a stop-loss insurance policy for individual claims
that exceed $250,000. In fiscal 2004, we will record an estimate for known
claims and for IBNR claims.

Pension Plans

Pension benefits are based on formulas that, among other things, reflect
the employees' years of service and compensation levels during their employment
period. Pension benefit obligations and related expense are actuarially computed
based on certain assumptions, including the long-term rate of return on plan
assets, the discount rate used to determine the present value of future pension
benefits and the rate of compensation increases. Actual results will often
differ from actuarial assumptions because of economic and other factors.

In accordance with the provisions of SFAS No. 87, "Employers' Accounting
for Pensions," the discount rate that we assume is required to reflect the rates
of high-quality debt instruments that would provide the future cash flows
necessary to pay benefits when they come due. We reduced our discount rate from
7.25% at March 31, 2002 to 6.75% at March 31, 2003 to reflect market interest
rate reductions. The effect of a lower discount rate increased the present value
of benefit obligations and will increase pension expense in fiscal 2004.

To determine the expected long-term rate of return on pension plan assets,
we consider the current and expected asset allocations, as well as historical
returns on plan assets. We assumed that long-term returns on pension assets were
9% during fiscal 2003. Based on the negative returns of the stock market and our
pension plan assets, we have reduced our expected long-term rate of return
assumption in fiscal 2004 to 8%.

Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply

24

to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.

At the emergence date, we had available federal net operating loss ("NOL")
carryforwards of approximately $112 million, which expire through 2022, and net
deferred tax assets (including NOL carryforwards) of approximately $75 million.
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. In addition, the use of
emergence date net deferred tax assets during fiscal 2003 results in the
recognition of income tax expense without the corresponding payment of cash
taxes. We have recorded a valuation allowance against the emergence date net
deferred tax assets, including NOL carryforwards remaining at March 31, 2003,
due to the uncertainty regarding their ultimate realization. Realization is
dependent upon generating sufficient future taxable income and the release of
the valuation allowance is dependent on our ability to forecast future results.
When we are able to demonstrate a pattern of predictable level of profitability
and thereby sufficiently reduce the uncertainty relating to the realization of
the NOL's, the valuation allowance will be recorded first as a reduction of
goodwill and then as an increase to paid-in-capital. See Note 11 to the
consolidated financial statements included in Part IV, Item 16 of this report.

Contingencies

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

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

RESULTS OF OPERATIONS

In order to provide a meaningful basis of comparing fiscal 2003 to fiscal
2002 and fiscal 2002 to fiscal 2001 for purposes of the following tables and
discussion, the operating results of the Reorganized Company for the nine months
ended March 31, 2002 have been combined with the operating results of the
Predecessor Company for the three months ended June 30, 2001 (collectively
referred to as "fiscal 2002"). The combining of reorganized and predecessor
periods does not result in a presentation that is in accordance with generally
accepted accounting principles, but we believe such results will provide
meaningful comparisons for sales, gross profit and general and administrative
expenses.

In fiscal 2003, we acquired one scrap metals recycling business in October
2002. However, the impact of the acquisition was not material to our results of
operations. In fiscal 2002, we did not acquire any scrap metals recycling
businesses so there was no corresponding effect to our results of operations in
that period. While we may acquire scrap metals recycling businesses in the
future, we do not expect future acquisitions to be significant in their effect
on our consolidated results of operations.

25

Fiscal 2003 compared to Fiscal 2002

SALES

Consolidated net sales for fiscal 2003 and for fiscal 2002 in broad product
categories were as follows ($ in millions):

Consolidated net sales increased by $138.9 million (22.0%) to $770.0
million in fiscal 2003 compared to consolidated net sales of $631.1 million in
fiscal 2002. The increase in consolidated net sales was primarily due to higher
ferrous sales volumes combined with higher average selling prices for ferrous
products.

Ferrous sales

Ferrous sales increased by $118.3 million (31.6%) to $492.7 million in
fiscal 2003 compared to ferrous sales of $374.4 million in fiscal 2002. The
increase in ferrous sales was attributable to increased demand and higher
selling prices. In fiscal 2003, ferrous sales volumes increased by 199,000 tons
(5.1%) and average selling price for ferrous products increased by $24 per ton
(25.3%) to approximately $119 per ton as compared to fiscal 2002.

Demand and pricing for our ferrous scrap was strong both domestically and
internationally in fiscal 2003. International demand and pricing was higher due
to the weakening U.S. dollar (which makes U.S. scrap more attractive to overseas
buyers) and strong demand from China. Demand was also strong from Mexico which
is an important market for our facilities in Houston and Arizona. The strong
international demand is evident in data released by the U.S. Commerce
Department, which shows that U.S. exports of ferrous scrap for calendar 2002
were approximately 9.9 million tons, an increase of 20% from calendar 2002. For
the first three months of calendar 2003, U.S. exports of ferrous scrap were 2.9
million tons, an increase of 19.7% from the comparable prior year period.

Domestic demand and pricing were higher due to increased production by U.S.
steel mills attributable, in part, to benefits from Section 201 tariffs.
According to data published by the American Iron and Steel Institute, U.S. steel
mills operated at an average capacity utilization rate of 89.5% in calendar 2002
compared to 75.1% in calendar 2001. Prior to calendar 2002, the strong U.S.
dollar allowed U.S. steel mills to import ferrous scrap from Eastern European
countries at lower prices than for ferrous scrap generated domestically, thereby
adversely affecting our sales. With the decreased availability of Eastern
European scrap and the weakening U.S. dollar, U.S. steel mills purchased more of
their ferrous scrap domestically, which has caused ferrous scrap prices to
increase since January 2002.

The increase in selling prices for ferrous scrap is evident in data
published by the American Metal Market ("AMM"). According to AMM, the average
price for #1 Heavy Melting Steel Scrap -- Chicago (which is a common indicator
for ferrous scrap) was approximately $96.71 per ton for fiscal 2003 compared to
$73.12 per ton in fiscal 2002.

Non-ferrous sales

Non-ferrous sales increased by $5.2 million (2.6%) to $205.5 million in
fiscal 2003 compared to non-ferrous sales of $200.3 million in fiscal 2002. The
increase was due to higher average selling prices partially

26

offset by lower sales volumes. In fiscal 2003, non-ferrous sales volumes
decreased by 5.4 million pounds and average selling price for non-ferrous
products increased by approximately $.01 per pound as compared to fiscal 2002.
Fiscal 2002 includes sales from our former MacLeod operations in California,
which were discontinued in December 2001 and completely ceased operations during
June 2002. Prior to its shutdown, MacLeod sold approximately 46 million pounds
of non-ferrous metals in fiscal 2002.

Although sales increased in fiscal 2003, our metal margins on non-ferrous
metals have remained consistent as compared to fiscal 2002. Our non-ferrous
operations continue to be impacted in both the supply and demand for non-ferrous
metals due to weakness in the aerospace and telecommunications industries. The
conditions of non-ferrous markets, including our three major
products -- aluminum, copper and stainless steel (nickel based metal) -- are
generally weak. Prices for certain non-ferrous metals have begun to stabilize
and increase, but demand still remains low. Although stainless steel demand
showed some improvement in fiscal 2003, many U.S. stainless steel mills have not
returned to historic production levels. Our copper sales are being impacted by
lower availability of copper scrap, primarily due to increased competition from
buyers of copper scrap in China. Aluminum and nickel markets continue to be
impacted by the general weakness in the aerospace industry, which was adversely
affected by the events of September 11, 2001. Many companies in the aerospace
industry have not returned to historical production levels which has impacted
our sales.

Our non-ferrous sales are also impacted by the mix of metals sold.
Generally, prices for copper are higher than prices for aluminum and stainless
steel. In addition, the amount of high-temperature alloys that we sell
(generally from our Aerospace subsidiary) and the selling prices for these
metals will impact our non-ferrous sales as prices for these metals are much
higher than other non-ferrous metals.

Brokerage sales

Brokerage ferrous sales increased by $18.2 million (49.7%) to $54.8 million
in fiscal 2003 compared to brokerage ferrous sales of $36.6 million in fiscal
2002. The increase was primarily a result of a $16 per ton increase in average
brokerage ferrous selling prices and a 104,000 ton increase in brokered ferrous
tons. In fiscal 2003, we expanded our brokerage business at certain operations
as a result of strong export demand for ferrous scrap. Demand from domestic
customers for obsolete scrap also increased during fiscal 2003. 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 $2.0 million (32.2%) to $4.2
million in fiscal 2003 compared to brokerage non-ferrous sales of $6.2 million
in fiscal 2002. The decrease was due to volume declining by 6.4 million pounds
offset by an increase in the average selling price of $0.03 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 sales

Other sales is primarily derived from our stevedoring and bus dismantling
operations. In fiscal 2002, our former MacLeod operations, which has been shut
down, generated other sales of $2.7 million from the operation of its aluminum
can redemption centers. Excluding the effect of the other sales from MacLeod in
fiscal 2002, other sales increased by $1.9 million primarily as a result of
higher stevedoring sales.

Gross profit

Gross profit was $105.1 million (13.7% of sales) in fiscal 2003 compared to
gross profit of $72.7 million (11.5% of sales) in fiscal 2002. The improvement
in gross profit was due to higher material margins realized on ferrous products
sold in fiscal 2003. Our material margins for ferrous products benefited from
rising prices throughout fiscal 2003 which more than offset the higher purchase
costs associated with ferrous scrap. In addition, increased export sales in
fiscal 2003 were also a contributing factor to the increase in gross profit.
Export sales are generally at higher prices reflecting the higher cost of
freight. Additionally, we realized

27

benefits from higher realization of non-ferrous metals recovered as a by-product
from the shredding process ("Zorba") and more attractive prices for Zorba in
fiscal 2003.

Our ferrous plant utilization was more efficient in fiscal 2003 as were
able to process more scrap without increasing costs commensurately. Our
processing expenses on a per unit basis and as a percentage of sales decreased
in fiscal 2003 as compared to fiscal 2002.

General and administrative expenses

General and administrative expenses were $50.5 million (6.6% of sales) in
fiscal 2003 compared to general and administrative expenses of $45.9 million
(7.3% of sales) in fiscal 2002. The increase in fiscal 2003 was mainly a result
of $6.2 million of compensation expense recognized pursuant to an incentive
compensation plan (the "Incentive Plan"). The Incentive Plan is measured as a
return on net assets, and based on our strong performance in fiscal 2003,
resulted in the recognition of $6.2 million of expense. The Incentive Plan was
administered and approved by the Compensation Committee of our Board of
Directors.

Medical claims expense declined by $1.8 million in fiscal 2003 as a result
of improved claims experience among our employees and higher premium
contributions by employees in fiscal 2003. Professional fees increased by $1.2
million in fiscal 2003 primarily due to higher legal and accounting fees. Legal
fees increased due to our cooperation with a subpoena received from the
Department of Justice (see Recent Developments) and due to a decision to
outsource all aspects of legal administration. Accounting fees increased
primarily due to advisory services required in connection with tax consequences
of our restructuring.

Depreciation and amortization

Depreciation and amortization expense was $17.5 million (2.3% of sales) in
fiscal 2003 compared to depreciation and amortization expense of $18.4 million
(2.9% of sales) in fiscal 2002. Approximately $0.3 million of the decrease is
due to the elimination of depreciation expense associated with the exit from our
MacLeod operations. Depreciation expense has also decreased as we carefully
allocated authorization for spending on capital equipment. In addition, we have
chosen to replace some of our existing equipment by entering into operating
leases, which contain favorable terms (see Liquidity and Capital Resources for
further discussion).

Non-cash and non-recurring expense (income)

Non-cash and non-recurring expense was $5.9 million in fiscal 2002. We
recorded an impairment charge of $3.1 million related to the exit from our
former MacLeod operations and an impairment charge of $2.8 million related to
fixed assets to be sold or otherwise abandoned. The impairment charge for
MacLeod was based on an evaluation of the proceeds that we expected to generate
from the liquidation of the assets of MacLeod compared to our investment in
MacLeod. We completed our exit from MacLeod during fiscal 2003 and generated
$0.7 million of proceeds more than we expected. As a result, we recognized
non-cash and non-recurring income of $0.7 million in fiscal 2003.

Income (loss) from joint ventures

Income from joint ventures was $3.1 million in fiscal 2003 compared to loss
from joint ventures of $0.3 million in fiscal 2002. During fiscal 2003, Southern
realized substantial benefits from improved ferrous market conditions including
a return to profitability. In addition, Southern strengthened its capitalization
by accomplishing a long-term refinancing of its debt during fiscal 2003. As a
result, in fiscal 2003, we collected $1.5 million on a note receivable from
Southern that we had previously reserved and recognized $1.8 million of our
share of income related to our investment in Southern. The note receivable from
Southern had been fully reserved in fiscal 2001. The loss from joint ventures in
fiscal 2002 represents our share of losses associated with another joint venture
in the scrap metals recycling business in which we have a 50% ownership.

28

Interest expense

Interest expense was $11.1 million (1.4% of sales) in fiscal 2003 compared
to interest expense of $14.6 million (2.3% of sales) in fiscal 2002. The
decrease was a result of lower borrowings and interest rates under our credit
facilities. Our average borrowings under our Credit Agreement in fiscal 2003
were approximately $24 million less than our average borrowings under our credit
facilities in fiscal 2002.

Our average interest rate on borrowings under our Credit Agreement in
fiscal 2003 was approximately 185 basis points lower than our average interest
rate on borrowings under credit facilities in fiscal 2002. This was due to the
reduction of the prime rate of interest in November 2002 by 50 basis points and
higher base interest rates in fiscal 2002 under our debtor-in-possession credit
agreement. Interest expense in fiscal 2002 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.

Interest and other income

The major components of this category are interest income and gains and
losses from sale of property. In fiscal 2003, we recognized $2.4 million of
gains from the sale of fixed assets. We sold two parcels of redundant real
estate which resulted in gains of $3.3 million. This was offset by losses on
sales and disposals of equipment of $0.9 million. In fiscal 2002, we recognized
losses from the sale of fixed assets of $0.2 million.

Reorganization costs

In fiscal 2002, we incurred reorganization costs of $10.8 million, 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 3 to the consolidated financial statements
included in Part IV, Item 16 of this report).

Income taxes

In fiscal 2003, we recognized income tax expense of $12.5 million resulting
in an effective tax rate of 38%. The recognition of income tax expense results
from the utilization of Predecessor Company net operating loss carryforwards and
other deferred tax assets, which is not offset by a corresponding reversal of
the related valuation allowance. Valuation allowance reversals of the
Predecessor Company, under generally accepted accounting principles, are
recorded first as a reduction in goodwill and then as an increase to
paid-in-capital. The effective tax rate differs from the statutory rate
primarily due to the impact of state income taxes and the reversal of valuation
allowances recorded against the Reorganized Company's deferred tax assets.

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 in fiscal 2002.

Extraordinary gain

In fiscal 2003, we recognized an extraordinary gain, net of tax, of $0.4
million, associated with the repurchase of Junior Secured Notes. In fiscal 2002,
we recognized an extraordinary gain of $145.7 million related to the
cancellation of the Subordinated Notes and other unsecured claims in the Chapter
11 proceedings (see Notes 4 and 10 to the consolidated financial statements
included in Part IV, Item 16 of this report). In accordance with SFAS No. 145,
"Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical
Corrections," in fiscal 2004 these amounts will be reclassified to other income
in our statement of operations.

29

Net income (loss)

Net income was $20.5 million in fiscal 2003 compared to net income of
$122.5 million in fiscal 2002. Net income in fiscal 2002 was primarily a result
of a $145.7 million extraordinary gain associated with cancellation of
indebtedness in the Chapter 11 proceedings. Net income in fiscal 2003 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.

Fiscal 2002 compared to Fiscal 2001

Our results from operations for fiscal 2002 were impacted much of the year
by the weakening economy in the U.S. Consequently, there was a general decline
in scrap generated, which reduced inbound scrap to our yards. This dynamic
particularly affected the inbound flow of prompt industrial grades of scrap
produced by manufacturers. Additionally, the domestic steel industry operated at
historically low operating levels during fiscal 2002, producing less tonnage of
new steel by comparison to historic averages. This generally reduced the demand
for scrap and reduced our unit shipments. In the non-ferrous metals industry, we
experienced particular weakness in both the supply and demand for non-ferrous
metals due to weakness in the aerospace and telecommunications industries. The
tragedies of September 11, 2001 also led to contraction in the supply and demand
for aluminum and nickel based metals and high-temperature alloys which are
important product categories to our non-ferrous yards.

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

NET SALES

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

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

Ferrous sales

Ferrous sales decreased by $47.6 million (11.3%) to $374.4 million in
fiscal 2002 compared to ferrous sales of $422.0 million in fiscal 2001. The
decrease was mainly a result of lower shipments and lower average sales prices
realized during the nine months ended December 31, 2001. During the three months
ended

30

March 31, 2002, ferrous sales improved as a result of increased volume and
prices. Since January 2002, we have seen improvement in domestic demand for
ferrous scrap and export opportunities are also available.

Non-ferrous sales

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

Brokerage sales

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

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

Gross Profit

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

General and administrative expenses

General and administrative expenses were $45.9 million (7.3% of sales) in
fiscal 2002 compared to general and administrative expenses of $56.3 million
(7.3% of sales) in fiscal 2001. General and administrative expenses declined by
$10.4 million (18.5%) during fiscal 2002 from fiscal 2001 mainly due to a
reduction in salaries and benefits. Salary expense decreased by $3.8 million
(12.4%) as we reduced administrative headcount by 8% and implemented a
compensation policy that limited salary increases. In addition, bonus expense
decreased by $2.8 million (68.7%) due to poor operating results. Medical
claims-related costs decreased by $1.5 million (37.0%) as we increased cost
sharing with employees through higher premium contributions. Other cost
containment initiatives including a reduction in travel and entertainment
expenses (14%) and lower professional fees (31%) also contributed to lower
general and administrative expenses in fiscal 2002.

Depreciation and amortization

Depreciation and amortization expense was $18.4 million (2.9% of sales) in
fiscal 2002 compared to depreciation and amortization expense of $23.3 million
(3.0% of sales) in fiscal 2001. The decrease in depreciation and amortization
expense was the result of the goodwill impairment charge recorded as of October
1, 2000 which resulted in the elimination of goodwill amortization expense for
periods after October 1, 2000. Prior to the goodwill impairment charge, goodwill
amortization was approximately $8 million annually. Depreciation expense has
remained relatively constant as we operated with the same installed base of
equipment in fiscal 2002 and fiscal 2001.
31

Goodwill impairment charge

In fiscal 2001, the Predecessor Company changed its method of accounting
for assessing whether an impairment exists in the recorded amount of acquired
business unit goodwill and other intangible assets from an undiscounted cash
flow method to a fair value method. As a result of applying the fair value
method, the Predecessor Company recorded a goodwill impairment charge of $280.1
million in fiscal 2001 (see Note 2 to the consolidated financial statements
included in Part IV, Item 16 of this report).

Non-cash and non-recurring expenses

Non-cash and non-recurring expense was $5.9 million in fiscal 2002. We
recorded an impairment charge of $3.1 million related to one of our operations
which we are in the process of exiting and an impairment charge of $2.8 million
related to fixed assets which are to be sold or otherwise abandoned. Non-cash
and non-recurring expense was $6.4 million in fiscal 2001, which primarily
represents asset impairments (see Note 5 to the consolidated financial
statements included in Part IV, Item 16 of this report).

Interest expense

Interest expense was $14.6 million (2.3% of sales) in fiscal 2002 compared
to interest expense of $34.2 million (4.4% of sales) in fiscal 2001. The
decrease in interest expense was a result of lower borrowings under credit
facilities, lower interest rates on borrowings under credit facilities, and the
elimination of interest expense related to unsecured debt after the Petition
Date, including but not limited to interest on the Subordinated Notes. Interest
on the Subordinated Notes was $1.5 million per month prior to the Petition Date.
Borrowings on credit facilities are at variable rates tied to the prime rate of
interest, which declined by 475 basis points from January 2001 to March 2002.

Reorganization costs

Reorganization costs mainly represent professional fees, liabilities for
rejected contracts and settlements, fresh-start adjustments and other expenses
associated with the Chapter 11 proceedings (see Note 3 to the consolidated
financial statements included in Part IV, Item 16 of this report).

Income taxes

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

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.

Extraordinary gain

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 4 to the consolidated financial statements included in
Part IV, Item 16 of this Report).

Net income (loss)

Net income was $122.5 million in fiscal 2002 compared to a net loss of
$365.6 million in fiscal 2001. The improvement was a result of an extraordinary
gain associated with cancellation of indebtedness, lower interest and general
and administrative expenses and the elimination of goodwill amortization.
32

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

In fiscal 2003, our operating activities generated net cash of $46.3
million compared to $31.2 million in fiscal 2002. In fiscal 2003, cash was
provided by net income adjusted for non-cash items of $46.2 million and changes
in working capital of $0.1 million. Accounts payable increased by $14.3 million,
as we increased purchases of scrap metal and gained more favorable credit terms.
This offset increases in accounts receivable ($5.0 million) and inventories
($12.0 million). Due to the utilization of net operating loss carryforwards,
cash payments for federal and state income taxes were only $0.6 million.

We generated $0.2 million in net cash for investing activities in fiscal
2003 compared to a use of $3.3 million in fiscal 2002. In fiscal 2003, purchases
of property and equipment were $8.5 million, while we generated $10.6 million of
cash from the sale of real estate and redundant fixed assets. We also used $3.3
million of cash to acquire certain assets of a scrap metals recycling company
and received a $1.5 million note payment from Southern. In fiscal 2002,
purchases of property and equipment were $4.7 million and proceeds from sale of
redundant fixed assets were $1.7 million.

We used $46.5 million in net cash for financing activities in fiscal 2003
compared to $28.5 million in fiscal 2002. Cash generated from operating and
investing activities were used primarily to repay borrowings under our Credit
Agreement. We paid $2.8 million of fees and expenses associated with our Credit
Agreement. In addition, we repurchased $2.4 million par amount of Junior Secured
Notes for approximately $1.8 million in cash.

Indebtedness

At March 31, 2003, our total indebtedness was $89.6 million, a decrease of
$44.4 million from March 31, 2002. Our primary source of financing is our $115
million revolving credit and letter of credit facility (the "Credit Agreement")
with Deutsche Bank Trust Company Americas. On May 23, 2003, the Credit Agreement
was amended to extend the maturity date to June 7, 2004.

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 $20.3 million as of May 29, 2003, which amortizes by $2.4 million on
a quarterly basis and under certain other conditions. 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 the 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.

Under our Credit Agreement, we are required to satisfy specified financial
covenants, including an interest coverage ratio of 2.10 to 1.00 and a leverage
ratio of 4.25 to 1.00 (each for the twelve month period ending each fiscal
quarter).

The Credit Agreement limits our capital expenditures to $16 million each
fiscal year. The Credit Agreement also contains restrictions which, among other
things, limit our ability to (i) incur additional indebtedness; (ii) pay
dividends; (iii) enter into transactions with affiliates; (iv) enter into
certain asset sales; (v) engage in certain acquisitions, investments, mergers
and consolidations; (vi) prepay certain other indebtedness; (vii) create liens
and encumbrances on our assets and (viii) other matters customarily restricted
in such agreements. We were in compliance with all financial covenants as of
March 31, 2003. As of May 29, 2003, we had outstanding borrowings of
approximately $70 million under the Credit Agreement and undrawn availability of
approximately $41 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. 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

33

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.

We also have outstanding $31.5 million of Junior Secured Notes, which
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
real and personal property and equipment has been pledged as collateral against
the Junior Secured Notes.

In fiscal 2003, we repurchased $2.4 million par amount of Junior Secured
Notes for approximately $1.8 million. We used borrowings under our Credit
Agreement to repurchase these Junior Secured Notes. 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

Our Credit Agreement expires on June 7, 2004 and our Junior Secured Notes
mature on June 15, 2004. In order for us to extend our Credit Agreement beyond
its maturity date, we will be required by our lenders to, among other things,
refinance our obligations under our Junior Secured Notes. Since the fall of
2002, we have been in negotiations with various investors to raise capital which
would repay, in whole or in part, our obligations under the Junior Secured
Notes. Although we have not consummated a transaction as of the date of this
report, discussions are still ongoing with certain investors and we intend to
explore other opportunities to finalize a transaction prior to the expiration of
the Credit Agreement (see the section entitled "Risk Factors -- Our Credit
Agreement and Junior Secured Notes become due in June 2004 and we may be unable
to find replacement financing"). If we are not able to extend or renew our
Credit Agreement and cannot obtain alternative financing, we will not be able to
generate sufficient cash flows from operations to satisfy all of our obligations
as they mature in fiscal 2005.

We expect to fund our working capital needs, interest payments and capital
expenditures over the next twelve months with cash generated from operations,
supplemented by undrawn borrowing availability under the Credit Agreement. 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.

Working capital requirements include $6.0 million of cash to be paid in May
2003 for the Incentive Plan and a $2.0 million coupon payment on the Junior
Secured Notes. Capital expenditures are planned to be approximately $12 million
to $16 million in fiscal 2004, 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 October 2003.

34

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 19 operating leases
for equipment which would have cost approximately $5.3 million to purchase.
These operating leases are attractive to us since the implied interest rates are
lower than interest rates under our credit facilities. We expect to selectively
use operating leases for new material handling equipment required by our
operations.

In October 2002, we purchased certain assets of a scrap metals recycling
company for $3.3 million in cash (including transaction costs). While we have no
significant pending acquisitions, we may choose to consider selective
opportunities for acquisitions in the future.

The Predecessor Company historically financed a part of its operations
through the issuance of common stock or convertible preferred stock. Since we
emerged from bankruptcy in 2001 and a limited market for our common stock has
recently developed, we may elect to issue equity in the future to finance our
operations or to reduce debt. The issuance of equity would dilute the ownership
of existing shareholders.

We believe these sources of capital will be sufficient to fund planned
capital expenditures, interest payments and working capital requirements for the
next twelve months, although there can be no assurance that this will be the
case. In addition, the instruments governing the Credit Agreement and the Junior
Secured Notes will limit our ability to incur additional debt to fund
significant acquisition or expansion opportunities.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

We do not have any off-balance sheet arrangements that are likely to have a
current or future effect on our results of operations, financial condition, or
cash flows. We have assumed various financial obligations and commitments in the
normal course of our operations and financing activities. Financial obligations
are considered to represent known future cash payments that we are required to
make under existing contractual arrangements, such as debt and lease agreements.
Refer to Note 13 to our financial statements included in Part IV, Item 16 of
this report for a description of our obligations related to guarantees,
operating leases and other commitments.

The following table sets forth our known contractual obligations as of
March 31, 2003, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):

Other commitments

We are required to make contributions to our defined benefit pension plans.
These contributions are required under the minimum funding requirements of the
Employee Retirement Income Security Act (ERISA). However, due to uncertainties
regarding significant assumptions involved in estimating future required
contributions, such as pension plan benefit levels, interest rate levels and the
amount of pension plan asset returns, we are not able to reasonably estimate the
amount of future required contributions beyond fiscal 2004. Our minimum required
pension contributions for fiscal 2004 will be approximately $1.2 million.

We also enter into letters of credit in the ordinary course of operating
and financing activities. As of May 29, 2003, we had outstanding letters of
credit of $4.0 million which expire in fiscal 2004.

35

In November 2001, we amended our lease agreement for land on which we
operate a scrap metals recycling facility in Houston, Texas. The lease agreement
expires on October 31, 2006 and provides for, among other things, an option for
the lessor to sell the land to us beginning on the 22nd month of the lease. We
also have an option to purchase the land beginning on the 22nd month of the
lease (August 2003). The purchase price for the land is based on the month in
which the option is exercised as follows:

In connection with a prior acquisition, we agreed to indemnify the selling
shareholders in that acquisition (the "Selling Shareholders") for, among other
things, breaches of representations, warranties and covenants and for guaranties
provided by certain shareholders of commercial agreements. The Selling
Shareholders' ability to assert indemnification claims expires in November 2003.
No indemnification claims have been asserted against us. The amount that we
could be required to pay under the indemnification obligations could range from
$0 to a maximum amount of approximately $2 million, excluding interest and
collection costs.

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, 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 gains on the debt extinguishments recognized during
the year ended March 31, 2003 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 our statement of operations.

In June 2002, 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 adopted SFAS No. 146
as of January 1, 2003 and the adoption did not have a material impact on our
consolidated financial position or results of operations.

In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," ("FIN 45") which requires certain
guarantees to be recorded at fair value as opposed to the current practice of
recording a liability only when a loss is probable and reasonably estimable. FIN
45 also requires a guarantor to make significant new guaranty disclosures, even
when the likelihood of making any payments under the guarantee is remote. The
disclosure requirements of FIN 45 are effective for interim and annual periods
ending after December 15, 2002, and we adopted these requirements for our
financial statements included in Part IV, Item 16 of this report. The initial
recognition and initial measurement provisions of FIN 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation."

36

SFAS No. 148 provides alternative methods of transition to the fair value method
of accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting used for stock-based employee compensation and the effect on reported
net income and earnings per share. We adopted the disclosure provisions of SFAS
No. 148, however, we have not changed the way we account for stock-based
employee compensation.

In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51 and applies immediately to any variable
interest entities created after January 31, 2003 and to variable interest
entities in which an interest is obtained after that date. FIN 46 will be
applicable to us in the second quarter of fiscal 2004, for interests acquired in
variable interest entities prior to February 1, 2003. We do not have any
variable interest entities and therefore the adoption of this interpretation
will not have any impact on our results of operations or financial condition.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

COMMODITY PRICE RISK

We are exposed to risks associated with fluctuations in the market price
for both ferrous and non-ferrous metals which are at times volatile. See the
discussion under the section entitled "Risk Factors -- The metals recycling
industry is highly cyclical and export markets can be volatile." We attempt to
mitigate this risk by seeking to turn our inventories quickly instead of holding
inventories in speculation of higher commodity prices.

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

INTEREST RATE RISK

We are exposed to interest rate risk on our long-term fixed interest rate
indebtedness and on our floating rate borrowings. As of March 31, 2003,
long-term fixed borrowings consisted mainly of $31.5 million principal of Junior
Secured Notes which bear interest at a fixed rate of 12 3/4%. Changes in
interest rates could cause the fair market value of indebtedness with a fixed
interest rate to increase or decrease, and thus increase or decrease the amount
required to refinance the indebtedness. As of March 31, 2003, variable rate
borrowings mainly consisted of outstanding borrowings of $57.2 million under our
Credit Agreement. Our borrowings on our Credit Agreement bear interest on either
the prime rate of interest or LIBOR plus a margin. Any increase in either base
rate would lead to higher interest expense. We do not have any interest rate
swaps or caps in place which would mitigate our exposure to fluctuations in the
interest rate on this indebtedness. Based on our average borrowings under our
Credit Agreement in fiscal 2003, a hypothetical increase or decrease in interest
rates by 1% would increase or decrease interest expense on our variable
borrowings by approximately $0.9 million per year, with a corresponding change
in cash flows.

FOREIGN CURRENCY RISK

Although international sales accounted for 14% of our consolidated net
sales in fiscal 2003, all of our international sales are denominated in U.S.
dollars. We also purchase a small percentage of our raw materials from
international vendors and some of these purchases are denominated in local
currencies. We do not enter into any foreign currency swaps to mitigate our
exposure to fluctuations in the currency rates.
37

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are set forth in Part IV, Item 16 of
this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

38

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this item is incorporated by reference from
sections entitled "Proposal No. 1 -- Election of Directors," "Executive
Officers," and "Section 16(a) Beneficial Ownership Reporting Compliance" in our
definitive proxy statement, which will be filed with the Securities and Exchange
Commission no later than July 29, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this item is incorporated by reference from
the section entitled "Executive Compensation," "Option Grants in the Last Fiscal
Year," "Option Exercises and fiscal Year-End Values" in our definitive proxy
statement, which will be filed with the Securities and Exchange Commission no
later than July 29, 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required under this item is incorporated by reference from
the sections entitled "Ownership of the Capital Stock of the Company," in our
definitive proxy statement, which will be filed with the Securities and Exchange
Commission no later than July 29, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated by reference from
the section entitled "Certain Relationships and Related Transactions" in our
definitive proxy statement, which will be filed with the Securities and Exchange
Commission no later than July 29, 2003.

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Under the
supervision and with the participation of our management, including Albert A.
Cozzi, our Vice-Chairman of the Board and Chief Executive Officer (CEO), and
Robert C. Larry, our Executive Vice-President, Finance and Chief Financial
Officer (CFO), we have evaluated the effectiveness of the design and operation
of our disclosure controls and procedures within 90 days of the filing date of
this annual report, and, based on their evaluation, our CEO and CFO have
concluded that, as of that date, these controls and procedures were adequate and
effective to ensure that material information relating to our company and our
consolidated subsidiaries would be made known to them by others within those
entities.

(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures subsequent to the date of their evaluation,
nor were there any significant deficiencies or material weaknesses in our
internal controls. As a result, no corrective actions were required or
undertaken.

Disclosure Controls and Internal Controls. Disclosure controls and
procedures are our controls and other procedures that are designed with the
objective of ensuring that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 (the
"Exchange Act") is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our CEO

39

and CFO, as appropriate to allow timely decisions regarding required disclosure.
Internal controls are procedures which are designed with the objective of
providing reasonable assurance that:

- our transactions are properly authorized;

- our assets are safeguarded against unauthorized or improper use; and

- our transactions are properly recorded and reported, all to permit the
preparation of our financial statements in conformity with generally
accepted accounting principles in the U.S.

Limitations on the Effectiveness of Controls. Our management, including
our CEO and CFO, does not expect that our disclosure controls or our internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable.

40

PART IV.

ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

(1) FINANCIAL STATEMENTS:

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

(3) EXHIBITS:

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

(b) REPORTS ON FORM 8-K:

On January 31, 2003, we filed a report on Form 8-K relating to a press
release we issued on January 30, 2003 announcing that we had received a subpoena
to produce documents before a federal grand jury.

On February 18, 2003, we filed a report on Form 8-K relating to (a) a press
release we issued on February 14, 2003 announcing our earnings for the quarter
and nine months ended December 31, 2002 and (b) to a press release issued on
February 18, 2003 announcing an extension to our Credit Agreement.

(c) SEE ITEM 16(a)(3) AND SEPARATE EXHIBIT INDEX ATTACHED HERETO.

(d) NOT APPLICABLE.

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois
on June 2, 2003.

METAL MANAGEMENT, INC.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 2, 2003.

42

CERTIFICATIONS

I, Albert A. Cozzi, certify that:

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

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and

c) Presented in this annual 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
annual report whether 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.

Date: June 2, 2003 /s/ ALBERT A. COZZI
--------------------------------------
Albert A. Cozzi
Vice-Chairman of the Board and
Chief Executive Officer

43

I, Robert C. Larry, certify that:

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

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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
annual report (the "Evaluation Date"); and

c) Presented in this annual 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
annual report whether 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.

Date: June 2, 2003 /s/ ROBERT C. LARRY
--------------------------------------
Robert C. Larry
Executive Vice President, Finance and
Chief Financial Officer

44

METAL MANAGEMENT, INC.

EXHIBIT INDEX

46

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 16(a)(1) on page 41 present fairly, in
all material respects, the financial position of Metal Management, Inc. and its
subsidiaries (the "Reorganized Company") at March 31, 2003 and 2002, and the
results of their operations and their cash flows for year ended March 31, 2003
and the nine months ended March 31, 2002 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the Reorganized Company financial statement schedule as of March
31, 2003 and 2002, and for year ended March 31, 2003 and the nine months ended
March 31, 2002 listed in the accompanying index under Item 16(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related Reorganized Company consolidated financial
statements. These financial statements and financial statement schedule are the
responsibility of the Reorganized Company's management; our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 1, 3, and 4, the consolidated financial statements of
the Reorganized Company have been prepared in conformity with fresh start
accounting provisions of Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," and accordingly are not
comparable with any prior periods presented.

As discussed in Note 10, the Reorganized Company's credit facility expires
on June 7, 2004. Additionally, the Reorganized Company's Junior Secured Notes
mature on June 15, 2004.

As discussed in Note 9, the Reorganized Company changed its method of
accounting for goodwill and intangible assets effective June 30, 2001.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
June 2, 2003

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 16(a)(1) on page 41 present fairly, in
all material respects, the results of operations and cash flows of Metal
Management, Inc. and its subsidiaries (the "Predecessor Company") for year ended
March 31, 2001 and the three months ended June 30, 2001 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the Predecessor Company financial statement schedule
for year ended March 31, 2001 and the three months ended June 30, 2001 listed in
the accompanying index under Item 16(a)(2) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related Predecessor Company consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Predecessor Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

As discussed in Notes 1, 3 and 4, the Predecessor Company filed for relief
under Chapter 11 of the United States Bankruptcy Code in November 2000 and
emerged from bankruptcy proceedings On June 29, 2001. Upon emergence from
bankruptcy, the consolidated financial statements of the Predecessor Company are
presented in accordance with Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code."

As discussed in Note 2, the Predecessor Company changed its method of
accounting for derivatives effective April 1, 2001.

As discussed in Note 2, the Predecessor Company changed its method of
accounting for assessing whether an impairment exists in the recorded amount of
acquired business unit goodwill and other intangible assets in 2001.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
June 5, 2002

F-2

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

See accompanying notes to consolidated financial statements

F-3

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

See accompanying notes to consolidated financial statements

F-4

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

See accompanying notes to consolidated financial statements

F-5

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

See accompanying notes to consolidated financial statements

F-6

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS
Metal Management, Inc., a Delaware corporation, and its wholly-owned
subsidiaries (the "Company") are principally engaged in the business of
collecting and processing ferrous and non-ferrous metals. The Company collects
industrial scrap and obsolete scrap, processes it into reusable forms, and
supplies the recycled metals to its customers, including electric arc furnace
mills, integrated steel mills, foundries, secondary smelters and metals brokers.
These services are provided through the Company's recycling facilities located
in 13 states. The Company's ferrous products primarily include shredded,
sheared, cold briquetted, bundled scrap, turnings and broken furnace iron. The
Company also processes non-ferrous metals, including aluminum, stainless steel,
copper, brass, titanium and high-temperature alloys, using similar techniques
and through application of certain of the Company's proprietary technologies.

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

As discussed in Note 3 -- Reorganization Under Chapter 11, on November 20,
2000 (the "Petition Date"), the Company filed voluntary petitions (Case Nos.
00-4303 -- 00-4331 (SLR)) commencing cases under Chapter 11 of the U.S.
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). On June 29, 2001, the
Company emerged from Chapter 11 bankruptcy. On September 17, 2002, a Final
Decree Motion was approved by the Bankruptcy Court, which officially closed the
Chapter 11 proceedings.

As a result of the Company's emergence from Chapter 11 bankruptcy and the
application of fresh-start reporting (see Note 4 -- Fresh-Start Reporting),
consolidated financial statements for the Company for the periods subsequent to
June 30, 2001, following the effective date of the Company's plan of
reorganization in the bankruptcy proceedings, are referred to as the
"Reorganized Company" and are not comparable to those for the periods prior to
June 30, 2001, which are referred to as the "Predecessor Company." A black line
has been drawn in the audited consolidated financial statements to distinguish,
for accounting purposes, the periods associated with the Reorganized Company and
the Predecessor Company. Aside from the effects of fresh-start reporting and new
accounting pronouncements adopted since the effective date of the plan of
reorganization, the Reorganized Company follows the same accounting policies as
the Predecessor Company.

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

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

REVENUE RECOGNITION
Revenues for processed product sales are recognized when title passes to
the customer. Revenue relating to brokered sales are recognized upon receipt of
the materials by the customer. Revenues from services,

F-7

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

including stevedoring and tolling, are recognized as they are performed. Sales
adjustments related to price and weight differences and allowances for
uncollectible receivables are accrued against revenues as incurred.

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

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

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

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

ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from customers on product,
broker and other sales. The carrying amount of accounts receivable approximates
fair value. The Company's determination of the allowance for uncollectible
accounts receivable includes a number of factors, including the age of the
accounts, past experience with the accounts, changes in collection patterns and
general industry conditions. Allowance for uncollectible accounts were
approximately $1.0 million and $2.4 million at March 31, 2003 and 2002,
respectively.

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

PROPERTY AND EQUIPMENT HELD FOR SALE
The Company reviews its scrap metals operations to evaluate the long-term
economic viability of certain of its investments in property and equipment.
These reviews result in the identification of redundant property and equipment
which the Company holds for sale. The Company has classified these assets as
held for sale and, in the aggregate, has reported the amount as a component of
current assets as the Company expects to sell the property and equipment within
one year. The assets are recorded at their estimated fair value less costs to
dispose of, if any.

F-8

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

GOODWILL AND OTHER INTANGIBLE ASSETS
Reorganized Company
Goodwill includes the excess reorganization value recognized in fresh-start
reporting and the excess of the acquisition cost of an acquired entity over the
fair value of identifiable net assets acquired. In accordance with SFAS No. 142
(see Note 9 -- Goodwill and Other Intangibles), the Company does not amortize
goodwill. Other intangible assets consist of customer lists and non-competition
agreements. The Company amortizes these intangibles on a straight-line basis
over the estimated useful life or the term of the related agreements.

Goodwill is subject to an annual impairment test whereby goodwill is
allocated to the Company's reporting units and an impairment is deemed to exist
if the carrying value of the reporting unit exceeds its estimated fair value. No
impairment charge was recorded at March 31, 2003 in connection with the annual
impairment test.

Predecessor Company
During the third quarter of the fiscal year ended March 31, 2001, the
Predecessor Company changed its method of accounting for assessing whether an
impairment existed in the recorded amount of acquired business unit goodwill and
other intangible assets, from an undiscounted cash flow method to a fair value
method. Under its previous accounting method, this determination was made
whenever events or circumstances indicated that expected undiscounted future
cash flows were less than the recorded investment amounts of acquired
businesses, including business unit goodwill and other intangible assets. Under
the fair value method, the determination of whether an impairment exists is made
whenever events or circumstances indicate that the fair value of investments in
acquired businesses, including business unit goodwill and other intangibles, is
less than the recorded amount. Any impairment is measured by comparing the
recorded amount of investments in acquired businesses, including business unit
goodwill and other intangibles, to the fair value. Fair value is determined on
the basis of appraised market values, or in the absence of appraised market
values, on the basis of discounted cash flows.

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

IMPAIRMENT OF LONG-LIVED ASSETS:
The Company periodically evaluates the recoverability of its long-lived
assets (including other intangible assets) and evaluates such assets for
impairment whenever events or circumstances indicate that the carrying amount of
such assets (or group of assets) may not be recoverable. Impairment is
determined to exist if the estimated future undiscounted cash flows are less
than the carrying value of such asset. The amount of any impairment then
recognized would be calculated as the difference between the fair value and the
carrying value of the asset.

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.

F-9

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

DEFERRED FINANCING COSTS, NET
Deferred financing costs represent costs incurred in connection with the
placement of long-term debt and are capitalized and amortized to interest
expense using the straight-line method over the term of the long-term debt.
Deferred financing costs amortization expense for the year ended March 31, 2003,
the nine months ended March 31, 2002, the three months ended June 30, 2001 and
the year ended March 31, 2001 was $2.2 million, $0.9 million, $1.2 million and
$3.0 million, respectively. The deferred financing cost accumulated amortization
at March 31, 2003 and 2002 was $3.1 million and $0.9 million, respectively.

INVESTMENTS IN JOINT VENTURES
The Company has investments in two joint ventures which are engaged in the
scrap metals recycling business. One of its joint venture investments is
Southern Recycling, L.L.C. ("Southern") in which the Company has a 28.5%
interest.

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

Income from joint ventures was $3.1 million for the year ended March 31,
2003. During fiscal 2003, Southern realized substantial benefits from improved
ferrous market conditions including a return to profitability. In addition,
Southern strengthened its capitalization by accomplishing a long-term
refinancing of its debt during fiscal 2003. As a result, in fiscal 2003, the
Company collected $1.5 million on a note receivable from Southern that it had
previously reserved and recognized $1.8 million of its share of income related
to its investment in Southern.

INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

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

The Company historically had not experienced material losses from the
noncollection of accounts receivables. However, from April 2000 to March 2002,
weak market conditions in the steel sector led to bankruptcy filings by certain
of the Company's customers including, but not limited to, LTV Steel Company,
Inc. and Northwestern Steel and Wire Company. These bankruptcies resulted in
uncollected receivables of approximately $8 million which were recorded in the
year ended March 31, 2001, the three months ended June 30, 2001 and the nine
months ended March 31, 2002.

F-10

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

For the year ended March 31, 2003, the ten largest customers of the Company
represented approximately 41% of consolidated net sales. These customers
comprised approximately 49% of accounts receivable at March 31, 2003. Sales
during the year ended March 31, 2003 to The David J. Joseph Company represented
approximately 15% of consolidated net sales.

For the year ended March 31, 2003, export sales represented approximately
14% of consolidated net sales. At March 31, 2003, receivables from foreign
customers represented approximately 3% of consolidated accounts receivable.

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

EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share ("EPS") is computed by dividing net
income (loss) applicable to common stock by the weighted average common shares
outstanding. Diluted EPS reflects the potential dilution that could occur from
the exercise of stock options and warrants or the conversion of debt and
preferred stock into common stock.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments including other assets,
accounts payable, and current portion of long-term debt approximate the related
fair value because of the relatively short maturity of these instruments. As a
result of adopting SFAS No. 133 on April 1, 2001, the carrying amounts of
futures contracts are equal to the fair values as determined from market quotes.

The fair value of the Credit Agreement approximates its fair value as the
facility bears a floating rate of interest based on the prime rate. The fair
market value of the Junior Secured Notes, based on market quotes, was $23.6
million (carrying value of $31.5 million) and $21.2 million (carrying value of
$34 million) at March 31, 2003 and 2002, respectively. The carrying value of the
Company's other borrowings approximates fair value.

STOCK BASED COMPENSATION
The Company accounts for stock based compensation under the recognition and
measurement principles of APB No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The only stock based compensation cost
reflected in net income was the fair value of warrants issued to a consultant
and value associated with the acceleration of vesting of certain warrants for a
terminated employee.

The following table illustrates the pro forma effects on net income (loss)
and earnings (loss) per common share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for

F-11

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

Stock-Based Compensation" to stock-based employee compensation (in thousands,
except for earnings per share):

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

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

SELF-INSURED RESERVES
The Company is self-insured for medical claims for most of its employees.
The Company's exposure to medical claims is protected by a stop-loss insurance
policy. The Company records a reserve for the estimated cost of reported but
unpaid and incurred but not reported ("IBNR") claims. The estimate is based on a
lag

F-12

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

estimate calculated by its insurance plan administrator and its historical
claims experience. The lag accrual is based on recent actual claims paid.
Effective April 1, 2003, the Company is also self-insuring for workers'
compensation claims. The Company has a stop-loss insurance policy for individual
claims that exceed $250,000.

NEW ACCOUNTING PRONOUNCEMENTS
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 gains on the debt
extinguishments recognized during the year ended March 31, 2003 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.

Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS 146 nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
The adoption of this statement did not have a material affect on the Company's
consolidated financial position, results of operations or cash flows.

In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires certain
guarantees be recorded at fair value as opposed to the current practice of
recording a liability only when a loss is probable and reasonably estimable. FIN
45 also requires a guarantor to make significant new guaranty disclosures, even
when the likelihood of making any payments under the guarantee is remote. The
disclosure requirements of FIN 45 are effective for interim and annual periods
ending after December 15, 2002, and the Company has adopted these requirements
for its financial statements included in this report. The initial recognition
and initial measurement provisions of FIN 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002.

In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition to the fair value method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting used for stock-based
employee compensation and the effect on reported net income and earnings per
share. The Company has not changed the way its accounts for stock-based employee
compensation, although it has adopted the disclosure provisions of SFAS No. 148.

In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of
Accounting Research Bulletin No. 51 and applies immediately to any variable
interest entities created after January 31, 2003 and to variable interest
entities in which an interest is obtained after that date. FIN 46 will be
applicable to the Company in the second quarter of fiscal 2004, for interests
acquired in variable interest entities prior to February 1, 2003. The Company
does not have any variable interest entities and therefore adoption of this
interpretation will have no impact on the Company's results of operations or
financial condition.

F-13

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

NOTE 3 -- REORGANIZATION UNDER CHAPTER 11

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

PLAN OF REORGANIZATION
In furtherance of an agreement reached between the Company and the holders
of a significant percentage of its pre-petition debt prior to the initiation of
the Chapter 11 proceedings, the Company filed a plan of reorganization (the
"Plan") pursuant to Chapter 11 of the Bankruptcy Code on May 4, 2001. The
Bankruptcy Court confirmed the Plan which became effective on June 29, 2001 (the
"Effective Date").

The following is a summary of certain material provisions of the Plan and
should be read together with the entire Plan in order to understand all of the
terms of the Plan. The Plan, which is Exhibit A of the Company's Disclosure
Statement, has been filed as an exhibit to this report and is incorporated by
reference herein. 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 15, 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
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 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 were otherwise
deemed under the Plan to have elected) to be treated as an allowed Class
6 Claim received a total of 9,900,000 shares of common stock of the
Reorganized Company. The total amount of Class 6 Claims aggregated
approximately $211.9 million.

- Preferred Stockholder and Common Stockholder Claims ("Equity Claims") --
the holders of the Predecessor Company's convertible preferred stock
received their pro-rata share of 7,300 shares of common stock of the
Reorganized Company and warrants (designated as "Series A Warrants") to
purchase 54,750 shares of common stock of the Reorganized Company. The
holders of the Predecessor Company's common stock received their pro-rata
share of 92,700 shares of common stock of the Reorganized Company and
Series A Warrants to purchase 692,750 shares of common stock of the
Reorganized Company. The Series A Warrants are immediately exercisable at
an exercise price equal to $21.19 per share.

- A Management Equity Incentive Plan was approved under the Plan pursuant
to which 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").

F-14

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

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

The Company wrote off $9.0 million of deferred financing costs related to
its pre-petition credit facility and its Subordinated Notes. These amounts were
written off because the pre-petition credit facility was terminated and replaced
with a $200 million debtor-in-possession credit facility and all of the
Subordinated Notes were cancelled and exchanged for common stock pursuant to the
Plan.

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.

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

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

NOTE 4 -- FRESH-START REPORTING

As previously discussed, the consolidated financial statements reflect the
use of fresh-start reporting as required by SOP 90-7. Under fresh-start
reporting, a reorganization value for the entity was determined by the Company's
financial advisor based upon the estimated fair value of the enterprise before
considering values allocated to debt to be settled in the reorganization. The
reorganization value was allocated to the fair values of the Company's assets
and liabilities. The portion of the reorganization value which could not be
attributed to specific tangible or identified intangible assets of the
Reorganized Company was $15.5 million. In accordance with SFAS No. 142, this
amount is reported as "Goodwill" in the consolidated financial statements and is
not being amortized (See Note 9 -- Goodwill and Other Intangibles).

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

F-15

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

operating businesses viewed to be similar to that of the Company, and other
applicable ratios and valuation techniques believed by the Company and its
financial advisor to be representative of the Company's business and industry.
The valuation was based upon a number of estimates and assumptions, which are
inherently subject to significant uncertainties and contingencies beyond the
control of the Company.

The consolidated statement of operations of the Predecessor Company for the
three months ended June 30, 2001 reflect fresh start reporting adjustments of
$0.9 million and an extraordinary gain of $145.7 million related to the
discharge of indebtedness in accordance with the Plan. The following summarizes
the effects of fresh-start reporting on the Company's consolidated balance sheet
as of June 30, 2001 (in thousands):

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

NOTES:

(a) Reflects the proceeds of the Credit Agreement, the repayment of the
Company's obligations under the debtor-in-possession credit agreement and
the deferred financing costs paid with respect to the Credit Agreement.
F-16

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

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

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

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

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

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

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

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

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

NOTE 5 -- NON-CASH AND NON-RECURRING EXPENSE (INCOME)

During the year ended March 31, 2003, the nine months ended March 31, 2002,
the three months ended June 30, 2001 and the year ended March 31, 2001, the
Company recorded the following non-cash and non-recurring expense (income) and
related reserve activity (in thousands):

F-17

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

SEVERANCE, FACILITY CLOSURE AND OTHER CHARGES AND ASSET IMPAIRMENT

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

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

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

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

NINE MONTHS ENDED MARCH 31, 2002 ACTIVITY
During December 2001, the Company completed an evaluation of the economic
viability of its Macleod operations in California considering the current market
conditions, liquidity needs and the outlook for a return to historical operating
levels. As a result, management implemented a plan to dispose of this facility
and commenced a complete wind-down of its operations. The Company recognized a
$3.1 million asset impairment charge related to this decision.

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

YEAR ENDED MARCH 31, 2003 ACTIVITY
During December 2002, the Company completed its exit from its Macleod
operations and generated $0.7 million more proceeds from the sale of assets than
originally anticipated. As a result, the Company recognized non-cash and
non-recurring income of $0.7 million.

MERGER RELATED COSTS
During the year ended March 31, 2001, the Company made payments of $38,000
relating to certain contracts and subsequently rejected the contracts in the
Chapter 11 proceedings. The non-cash utilization of $375,000 represented the
remaining balance due on the contracts which were reclassified to a liability
subject to compromise and settled in accordance with the Plan.
F-18

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

NOTE 6 -- EARNINGS PER SHARE

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

For the year ended March 31, 2003, approximately 2.3 million potential
common shares related to stock options and warrants were excluded from the
diluted EPS calculation as the option and warrant exercise prices were greater
than the average market price of the Company's common stock for the period.

Due to the loss from continuing operations applicable to common stock for
the nine months ended March 31, 2002, the three months ended June 30, 2001 and
the year ended March 31, 2001, the effect of dilutive stock options and warrants
and convertible note payable were not included as their effect would have been
anti-dilutive.

NOTE 7 -- SUPPLEMENTARY FINANCIAL INFORMATION

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

F-19

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

OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following at March 31 (in
thousands):

COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was as follows (in thousands):

INTEREST AND OTHER INCOME
Significant components of interest and other income are as follows (in
thousands):

F-20

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

NOTE 8 -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following at March 31 (in
thousands):

Depreciation expense was $17.5 million, $13.7 million, $4.7 million and
$19.4 million for the year ended March 31, 2003, the nine months ended March 31,
2002, the three months ended June 30, 2001 and the year ended March 31, 2001,
respectively. At March 31, 2003 and 2002, $3.5 million and $10.1 million of
property and equipment was classified as held-for-sale, respectively, and is
reported in current assets in the consolidated balance sheets.

NOTE 9 -- GOODWILL AND OTHER INTANGIBLES

The Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" in connection with fresh-start reporting.
SFAS No. 141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001 and establishes specific criteria for
the recognition of intangible assets separately from goodwill. SFAS No. 142
requires, among other things, the discontinuance of amortization related to
goodwill and indefinite lived intangible assets. Under SFAS No. 142, goodwill is
tested annually for impairment and in interim periods if certain events occur
indicating that the carrying value of goodwill may be impaired.

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

F-21

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

In October 2002, the Company acquired certain assets of a scrap metals
recycling company. The aggregate purchase consideration was $3.3 million
consisting of (i) $3.0 million of cash paid at closing, (ii) contingent
consideration of $0.2 million of cash placed in escrow, and payable in October
2003 after the achievement of certain earnout targets measured by tons of
material purchased from acquired customer accounts, and (iii) $0.1 million of
transaction costs. The Company obtained independent valuations of the tangible
and intangible assets associated with the purchase and allocated the purchase
consideration as follows: (i) $0.9 million to the fair value of equipment, (ii)
$1.3 million to customer lists (which is being amortized over 15 years), and
(iii) $1.1 million to goodwill. In January 2003, the Company entered into a
non-compete agreement, with a term of 4 years, with a former consultant for an
aggregate consideration of $240,000.

The Company's goodwill and other intangibles consist of the following at
March 31 (in thousands):

Total amortization expense for other intangibles for the year ended March
31, 2003 was $53,000. Amortization expense for other intangibles for the next
five years is as follows (in thousands):

FISCAL YEAR ENDING MARCH 31,
2004 $ 145
2005 145
2006 145
2007 135
2008 85

During the year ended March 31, 2003, the Company reduced goodwill by $12.2
million as a result of the utilization of pre-emergence deferred tax assets (see
Note 11 -- Income Taxes).

NOTE 10 -- LONG-TERM DEBT

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

F-22

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

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

FISCAL YEAR ENDING MARCH 31,
2004 $ 318
2005 89,000
2006 54
2007 53
2008 57
Thereafter 128
-------
Total $89,610
=======

CREDIT AGREEMENT
On June 29, 2001, the Company entered into a $150 million revolving loan
and letter of credit facility (the "Credit Agreement") with Deutsche Bank Trust
Company Americas, as agent for the lenders thereunder. On February 14, 2003, the
Credit Agreement was amended to reduce the maximum amount of borrowings
available under the credit facility to $115 million. On May 23, 2003, the Credit
Agreement was amended to extend the maturity date to June 7, 2004. 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 $20.3 million as of May 29, 2003, which amortizes by $2.4 million on
a quarterly basis and under certain other conditions. 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. Fees and expenses paid to the lenders by the
Company during the year ended March 31, 2003 amounted to $2.8 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.
If the Company is not able to extend or renew the Credit Agreement and cannot
obtain alternative financing, it will not be able to generate sufficient cash
flows from operations to satisfy all of its obligations as they mature in fiscal
2005.

F-23

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

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 real and
personal property 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 year ended March 31, 2003, the Company repurchased $2.4 million
par amount of Junior Secured Notes and recognized an extraordinary gain, net of
tax, of $0.4 million.

CONVERTIBLE DEBT
The Company issued a $1.6 million, 10% promissory note, due December 31,
2002, to its financial advisor involved in the Chapter 11 proceedings (see Note
3 -- Reorganization under Chapter 11). The Company repaid $0.8 million of the
promissory note on December 31, 2002 and repaid the remaining balance of $0.8
million on January 31, 2003. The holder of the promissory note had 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.

NOTE 11 -- INCOME TAXES

At the emergence date, the Company had available federal net operating loss
("NOL") carryforwards of approximately $112 million, which expire through 2022,
and net deferred tax assets (including NOL carryforwards) of approximately $75
million. 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 an increase to additional paid-in-capital. In
addition, the use of emergence date net deferred tax assets during fiscal 2003
results in the recognition of income tax expense without the corresponding
payment of cash taxes. The Company has recorded a valuation allowance against
the emergence date net deferred tax assets, including NOL carryforwards
remaining at March 31, 2003, due to the uncertainty regarding their ultimate
realization. Realization is dependent upon generating sufficient future taxable
income and the release of the valuation allowance is dependent on the Company's
ability to forecast future results. When the Company is able to demonstrate a
pattern of predictable level of profitability and thereby sufficiently reduce
the uncertainty relating to the realization of the NOL's, the valuation
allowance will be recorded first as a reduction of goodwill and then as an
increase to paid-in-capital.

F-24

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

The provision for federal and state income taxes is as follows (in
thousands):

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

F-25

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

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

NOTE 12 -- EMPLOYEE BENEFIT PLANS

401(K) AND PROFIT SHARING PLANS
The Company offers a 401(k) plan covering substantially all employees. For
non-union employees, the Company provides a matching contribution equal to 25%
of the employee's pre-tax contribution, up to 6% of the employee's compensation.
For employees covered under collective bargaining agreements, Company matching
contributions are made in accordance with each respective collective bargaining
agreement. Forfeitures of unvested Company contributions are used to reduce
future Company matching contributions. The Company also may make a discretionary
profit sharing contribution to the 401(k) plan. Matching contributions made by
the Company amounted to $0.3 million for the year ended March 31, 2003, $0.2
million for the nine months ended March 31, 2002 and $0.2 million for the year
ended March 31, 2001. No discretionary contributions have been made into the
401(k) plan.

PENSION PLANS
The Company sponsors four defined benefit pension plans which cover certain
employees of certain of the Company's subsidiaries. As of March 31, 2000, the
Company permanently eliminated benefit accruals for future service for non-union
employees covered under its defined benefit pension plans. For union employees,
benefits under the plans are based either on years of service and compensation
or based on years of service at fixed benefit rates. The Company's funding
policy for these plans is to contribute amounts required to meet regulatory
requirements. Plan assets are primarily invested in fixed income obligations of
the U.S. government and agencies, cash equivalents and equity securities.

Net pension cost (income) under these plans for the year ended March 31,
2003, the nine months ended March 31, 2002, the three months ended June 30, 2001
and the year ended March 31, 2001 were approximately $0.1 million, $0.1 million,
$0.0 million, and $(0.1) million, respectively. The following table

F-26

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

sets forth the funded status of the pension plans and the amounts recognized in
the Company's consolidated balance sheets at March 31 (in thousands):

- ---------------
* Rate of compensation increase is applicable to only one of the defined benefit
pension plans. Benefits for the other three defined benefit pension plans are
based on years of service.

Declines in equity markets resulted in negative investment returns in
pension plan assets in 2003 and 2002, which caused pension assets to be lower
than actuarial liabilities. As a result, the Company recorded additional minimum
pension liabilities of $1.7 million for the year ended March 31, 2003 and $0.5
million for the nine months ended March 31, 2002. The corresponding amounts are
required to be recognized as a separate component and reduction in stockholders'
equity.

NOTE 13 -- COMMITMENTS AND CONTINGENCIES

LEASES
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease expense was approximately $9.7 million, $6.9
million, $2.2 million and $8.2 million for the year ended

F-27

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

March 31, 2003, the nine months ended March 31, 2002, the three months ended
June 30, 2001 and the year ended March 31, 2001, respectively. Future minimum
lease payments under non-cancelable operating leases are as follows (in
thousands):

LETTERS OF CREDIT
As of March 31, 2003, the Company has outstanding letters of credit of $2.5
million. The letters of credit typically secure the rights to payment to certain
third parties in accordance with specified terms and conditions.

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

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

Although recent amendments to the Superfund law have limited the exposure
of scrap metal recyclers under Superfund for sales of recyclable material, the
Company can provide no assurance that it will not become liable in the future
for significant costs associated with the investigation and remediation of
Superfund sites. The only Superfund site in which the Company is currently
involved as a potentially responsible party is the Jack's Creek Superfund site
in Pennsylvania. As part of the Chapter 11 proceedings, the Company agreed to
pay the Jack's Creek PRP Group approximately $153,000 (of which only
approximately $77,000 remains to be paid) to resolve its involvement in this
Superfund site.

On July 1, 1998, Metal Management Connecticut, Inc. ("MTLM-Connecticut"), a
subsidiary of the Company, acquired the scrap metal recycling assets of Joseph
A. Schiavone Corp. (formerly known as Michael Schiavone & Sons, Inc.). The
acquired assets include real property in North Haven, Connecticut upon which
MTLM-Connecticut's scrap metal recycling operations are currently performed (the
"North Haven Facility"). The owner of Joseph A. Schiavone Corp. was Michael
Schiavone ("Schiavone").

On March 31, 2003, the Connecticut DEP filed suit against Joseph A.
Schiavone Corp., Schiavone, and MTLM-Connecticut in the Superior Court of the
State of Connecticut -- Judicial District of Hartford. The suit alleges, among
other things, that the North Haven Facility discharged and continues to
discharge

F-28

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

contaminants, including oily material, into the environment and has failed to
comply with the terms of certain permits and other filing requirements. The suit
seeks injunctions to restrict MTLM-Connecticut from maintaining discharges and
to require MTLM-Connecticut to remediate the facility. The suit also seeks civil
penalties from all of the defendants in accordance with Connecticut
environmental statutes. At this stage, the Company is not able to predict its
potential liability in connection with this action or any required investigation
and/or remediation. The Company believes that it has meritorious defenses to
certain of the claims asserted in the suit and intends to vigorously defend
itself against the claims. In addition, the Company believes it is entitled to
indemnification from Joseph A. Schiavone Corp. and Schiavone for some or all of
the obligations and liabilities that may be imposed on MTLM-Connecticut in
connection with this matter under the various agreements governing its purchase
of the North Haven Facility from Joseph A. Schiavone Corp. The Company cannot
provide assurances that Joseph A. Schiavone Corp. or Schiavone will have
sufficient resources to fund any or all indemnifiable claims that the Company
may assert.

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

PURCHASE OF REAL PROPERTY
In November 2001, the Company amended its lease agreement for land on which
it operates a scrap metals recycling facility in Houston, Texas. The lease
agreement expires on October 31, 2006 and provides for, among other things, an
option for the lessor to sell the land to the Company beginning on the 22nd
month of the lease at an amount which approximates fair value. The Company also
has an option to purchase the land beginning in the 22nd month of the lease
(August 2003). The purchase price for the land is based on the month in which
the option is exercised as follows:

INDEMNIFICATION
In connection with a prior acquisition, the Company has agreed to indemnify
the selling shareholders in that acquisition (the "Selling Shareholders") for,
among other things, breaches of representations, warranties and covenants and
for guaranties provided by certain shareholders of commercial agreements. The
Selling Shareholders' ability to assert indemnification claims expires in
November 2003. No indemnification claims have been asserted against the Company.
The amount that the Company could be required to pay under its indemnification
obligations could range from $0 to a maximum amount of approximately $2 million,
excluding interest and collection costs.

NOTE 14 -- STOCKHOLDERS' EQUITY

The Company is authorized to issue, in one or more series, up to a maximum
of 2,000,000 shares of preferred stock. The Company has currently not issued any
shares of preferred stock. The Company is authorized to issue 50,000,000 shares
of common stock, par value $0.01 per share. In accordance with the

F-29

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

Plan, the Company was required to distribute 10,000,000 shares of common stock
and warrants to purchase 750,000 shares of common stock (designated as "Series A
Warrants") as follows:

The Series A Warrants are immediately exercisable at an exercise price of
$21.19 per share and expire on June 29, 2006. As of the date of this report, the
Company has issued all 9,900,000 shares of common stock to Class 6 Creditors.
However, not all shares of common stock and Series A Warrants have been issued
to the Predecessor Company preferred stockholders and common stockholders as
these stockholders are required to return their Predecessor Company common stock
and preferred stock certificates in order to receive a distribution. For
accounting purposes, all 10,000,000 shares of common stock issued pursuant to
the Plan are deemed to be outstanding.

NOTE 15 -- STOCK-BASED COMPENSATION PLANS

STOCK OPTION PLANS
In accordance with the Plan, all options granted by the Predecessor Company
were cancelled as of the Effective Date.

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

WARRANTS
In accordance with the Plan, all warrants issued by the Predecessor Company
were cancelled as of the Effective Date. As indicated in Note
3 -- Reorganization Under Chapter 11, a Management Equity Incentive Plan was
approved under the Plan. The Series B and Series C Warrants were issued to key
employees and each vest ratably over three years and are exercisable for a
period of five years and seven years, respectively, from the grant date.

The Series A Warrants, issued pursuant to the Plan, are immediately
exercisable and expire on June 29, 2006. As of March 31, 2003, Series A Warrants
to purchase 684,029 shares of common stock had been issued.

F-30

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

In May 2002, the Company issued, to certain employees, warrants to purchase
260,000 shares of common stock at an exercise price of $3.75 per share, and also
issued to each non-employee director a warrant to purchase 15,000 shares of
common stock at an exercise price of $6.50 per share.

Summarized information for warrants issued by the Company is as follows:

The following table summarizes information about options and warrants
outstanding at March 31, 2003:

F-31

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

NOTE 16 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

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

(a) Reflects charges recorded for the impairment of fixed assets and facility
abandonments. See Note 5 -- Non-Cash and Non-Recurring Expense (Income).

(b) Includes a $2.6 million pre-tax gain on the sale of excess real estate.

(c) Includes a tax charge of $1.8 million to reflect positions taken upon filing
the fiscal 2002 tax return in December 2002. As a result of the tax filing,
the Company revised its estimates relating to emergence date tax assets that
are available to offset current year taxable income.

(d) Includes income from the Company's Southern joint venture of $1.8 million
representing its share of the earnings of Southern and $1.5 million from the
cash recovery of an impaired note.

(e) The sum of the quarterly per share amounts will not equal per share amounts
reported for the year-to-date period due to the changes in the number of
weighted-average shares outstanding for each period.

F-32

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

F-33