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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2005
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
[ ] SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM - TO -

COMMISSION FILE NUMBER 0-14836
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METAL MANAGEMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)

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DELAWARE 94-2835068
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)

500 N. DEARBORN STREET, SUITE 405, CHICAGO, IL 60610
(Address of Principal Executive Offices) (Zip Code)

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 X No _

The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $420 million as of September 30, 2004, the last
business day of the registrant's most recently completed second fiscal quarter,
based on a closing stock price of $18.18 per share.

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

As of May 2, 2005, the registrant had 24,912,843 shares of common stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

We expect to file a definitive proxy statement no later than July 29, 2005.
Portions of such proxy statement are incorporated by reference into Item 5 of
Part II and 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, 2005
TABLE OF CONTENTS

Certain statements made by us in this Form 10-K, including statements qualified
by the words "believes," "intend," "anticipate," "expects" and words of similar
import, are "forward-looking statements" and are thus prospective. These
statements reflect our current expectations 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. These forward-looking statements could involve, among other things,
statements regarding our intent, belief or expectation with respect to our
results of operations, financial condition, cash flows, liquidity or capital
resources, including expectations regarding sales growth and our ability to fund
our capital expenditures, interest payments and working capital needs; the
consummation of acquisitions and financial transactions and their effect on our
business, capitalization, and future operating results; our plans and objectives
for future operations; expected amounts of capital expenditures and the impact
of such capital expenditures on our results of operations, financial condition,
or cash flows; expected compliance obligations with respect to environmental and
other laws, the expected cost of such compliance and the timing of such costs;
the expected impact of any environmental liability on our results of operations,
financial condition or cash flows; the expected impact of any market risks, such
as interest rate risk, pension plan risk, foreign currency risk, commodity price
risks, and rates of return; expectations regarding the implementation of
financial accounting standards and the impact of such implemented standards;
assumptions used to test long-lived assets including, but not limited to,
goodwill, including expected operating profit and cash flows from the use of
assets and expected present value of cash flows; projections regarding pension
benefit obligations, including expected returns on plan assets, and expected
increase in compensation levels; assumptions used to calculate the fair value of
options, including expected term and stock price volatility; our belief
regarding our ability to compete; and our assumptions and expectations regarding
critical accounting policies. 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

OVERVIEW
Metal Management, Inc, a Delaware corporation, and its consolidated
subsidiaries ("we," "us," "our," or the "Company") is one of the largest
full-service metals recyclers in the United States, with recycling facilities
located in 15 states.

Our operations primarily involve the collection and processing of ferrous
and non-ferrous scrap 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 in Newark, New Jersey.

In January 2005, we entered into a joint venture agreement with Houchens
Industries, Inc. to form Metal Management Nashville, LLC. This 50% owned joint
venture operates scrap metal recycling businesses in Nashville, Tennessee and
Bowling Green, Kentucky. In March 2005, we entered into a joint venture
agreement with Donjon Marine Company, Inc. to form Port Albany Ventures LLC.
This 50% owned joint venture conducts stevedoring and marine operations on the
Hudson River in Albany, New York.

BUSINESS STRATEGY
Our business strategy is to continue to enhance our competitive position in
the scrap metals recycling industry. We make investments in our operations to
better serve our customers and improve profitability. Our

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national footprint and strong capitalization will allow us to evaluate and
potentially acquire other scrap metal businesses. This strategy should enable us
to continue to produce the free cash flow and maintain the financial flexibility
necessary to provide meaningful value to our stockholders. Key elements of our
strategy include:

Pursuing Growth Opportunities. We intend to pursue expansion opportunities
through acquisitions or strategic alliances. We believe that our national
footprint and capital structure position us well to identify, evaluate and
complete acquisitions of regional scrap metal businesses. Acquisitions may also
take the form of "tuck-ins," where small companies can be immediately integrated
into existing operations where we already enjoy leadership positions. In making
acquisitions, we will likely focus on major metropolitan markets where large
amounts of scrap metal are generated and on businesses with attractive
transportation attributes with which we can enhance our distribution channels to
better serve our consumers. Acquisitions would be selectively pursued with an
eye towards enhancing our competitive position in the national and international
marketplace and expected to improve our consolidated operating results. We will
also evaluate strategic alliances, and as described above, we recently entered
into two new joint ventures during the year ended March 31, 2005 ("fiscal
2005").

Investing in Our Existing Operations. We have made significant capital
investments in our existing operations to expand capacity or upgrade equipment.
These capital investments include equipment with new technology including recent
installations of "crossbelt metal analyzers" and "induction sorting systems."
The crossbelt metal analyzers enable us to provide our consumers specific
analysis of the metallic composition of our scrap metals. The induction sorting
system machines provide additional recovery of non-ferrous metals that are not
recovered through normal eddy current systems. We will continue to invest in our
existing operations and in new technology to further enhance our competitive
position, broaden our product offerings and provide economies of scale.

Maximizing Stockholder Value. In December 2004, we paid our first
quarterly cash dividend. We believe that our cash dividends are an efficient
means of distributing value to our stockholders. Our Board of Directors
currently expects to continue to declare cash dividends.

COMPETITIVE STRENGTHS
We believe that the following competitive strengths position us to
capitalize on future opportunities:

Industry Leader. We are one of the largest domestic scrap metal recycling
companies with approximately 40 facilities in 15 states. We enjoy leadership
positions in many major metropolitan markets, such as Birmingham, Chicago,
Cleveland, Denver, Hartford, Houston, Memphis, Newark, New Haven, Phoenix,
Pittsburgh, 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.

Locations. Our locations enable us to serve consumers throughout the U.S.
and the world. With a network of operating facilities across the U.S. which are
strategically located in major scrap producing markets, we are uniquely
positioned to offer a competitive advantage in distribution efficiency, both in
terms of cost and reliability. All of our facilities can ship directly by truck
or rail and many can ship by water in barges or ocean going vessels, enabling us
to have broader distribution channels coupled with attractive freight costs and
provide volume shipments to customers on a timely basis.

Broad Product Offerings. 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 and
bundled scrap metal, and other purchased scrap metal, such as turnings, cast and
broken furnace iron. We also process non-ferrous scrap metals, including
aluminum, copper, stainless steel and other nickel-bearing metals, brass,
titanium and high-temperature alloys, using similar techniques and through
application of our proprietary technologies.

Integration and Branding Initiatives. Through our integration efforts, we
have standardized the reporting systems and business practices of our operations
so that we are better able to evaluate operating performance. We expect 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

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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.

Commitment to Environment, Health and Safety. It is our intention and
practice to pursue rigorously high standards in order to improve the safety and
health of our employees and to protect the environment. We recognize that our
long-term success in the marketplace can be enhanced by our ability to create
competitive advantages by adopting and implementing rigorous standards designed
to strengthen our operations in the areas of safety and the environment. By
embracing these measures, we will succeed in adding value for customers and
maintaining a positive and safe working environment for employees. Every
employee is encouraged and required to be proactively committed to maintaining
safe and healthy working environments; the conservation of natural resources and
raw materials; and the protection of the local and global environment.

INDUSTRY
Although significant consolidation has occurred during the past several
years, the scrap metals industry in the U.S. remains highly fragmented. The
Institute of Scrap Recycling Industries, Inc. ("ISRI"), the trade association of
the scrap processing and recycling industry, represents approximately 1,300
member companies throughout North America and the world. Many of these companies
are family-owned and operate only in local or regional markets. We believe that
no single scrap metals recycler has a significant share of the domestic market,
although certain recyclers may have significant shares of their local or
regional markets. According to ISRI, scrap recyclers in the U.S. annually
recycle more than 68 million tons of iron and steel and 9 million tons of
non-ferrous metal.

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 relative economic conditions, fluctuating currencies, and the availability of
ocean-going vessels and their related costs. Additionally, demand for processed
ferrous scrap metal is highly dependent on the overall strength of the domestic
steel industry, particularly producers utilizing EAF technology. Ferrous prices
can fluctuate greatly from month to month which can significantly affect our
operating 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
1992 to 53% in 2004. In addition to growth in EAF production over the past three
years, as a result of steel industry consolidation, additional integrated steel
making capacity has either been restarted or consolidated into fewer and larger
steel makers. We believe this consolidation has also contributed to strong
demand for ferrous scrap. Accordingly, strong demand for inputs for EAF and
integrated steelmaking including materials such as coke, pig iron,
hot-briquetted iron and iron ore, some of which are consumed by both EAF and
integrated steel producers, are relevant in considering the availability of
scrap related to steel manufacturing processes. 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 since the 1970's was fueled, in part, by the
historically low prices of prepared ferrous scrap and faster conversion time to
process, which provided 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. As the price of ferrous
scrap metals increased in recent years, EAF operators have evaluated, and in
some cases invested in technologies that produce 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

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a supplemental feedstock thereby allowing EAF operators to rely to a greater
degree on lower grades of prepared scrap.

Due to its low price-to-weight ratio, raw ferrous scrap is generally
purchased locally from industrial manufacturers, 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; where there are overlapping
regional markets, however, the prices do not tend to differ significantly
between the regions due to the ability of companies to ship scrap metal from one
region to another. The most significant limitation on the size of the geographic
market for the procurement of ferrous scrap is the transportation cost.
Additionally, large scale scrap processing facilities such as ours are typically
located on or near key modes of transportation, such as railways and waterways,
which allows for competitive access to ship processed scrap to consumers.

Non-Ferrous Scrap Industry
Non-ferrous metals include aluminum, copper, brass, stainless steel and
other nickel-bearing metals, 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.

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
the processing of ferrous scrap. The primary non-ferrous commodities that we
recycle are aluminum, copper and stainless steel.

OUR 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 is generated as a
by-product in the form of residual materials from metals manufacturing
processes. Obsolete scrap consists primarily of residual metals from old or
obsolete consumer 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.

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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 operations. 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
steel producing mini-mills. We recover non-ferrous metals as a by-product from
the shredding process that we refer to as Zorba. Zorba is generally sold to
customers that sort and recover intrinsic metals (generally characterized as
non-ferrous) 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
steel mini-mills.

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

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

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

Ferrous Scrap Sales. We sell processed ferrous scrap to end-users such as
steel producing mini-mills and integrated steel makers and foundries, as well as
brokers who aggregate materials for other large users. Most of our customers
purchase processed ferrous scrap through negotiated spot sales contracts which
establishes the quantity purchased for the month. The price we charge for
ferrous scrap depends upon market demand and transportation costs, 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 is
enhanced by the broad product line that we offer 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 ferrous scrap as we are able to fill larger
quantity orders due to our ability to procure and process 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 and other
nickel-bearing metals, 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.

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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 and other nickel-bearing metals, 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 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.

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

Copper. Copper scrap may be processed in several ways. We have
historically processed copper scrap predominantly by using a wire chopping line
which grinds the wire into small pellets, though wire chopping activities have
been significantly curtailed in recent years. In addition to wire chopping, we
process copper scrap by baling and other repacking methods 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 COMEX or the London
Metals Exchange.

EMPLOYEES
At March 31, 2005, we employed approximately 1,580 employees, of whom
approximately 770 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 unions representing organized employee groups. Also, our
profitability could be adversely affected if increased costs associated with any
future labor contracts are not recoverable through productivity improvements,
price increases or cost reductions. We believe that we have good relations with
our employees.

SIGNIFICANT CUSTOMERS
In fiscal 2005 and the year ended March 31, 2004 ("fiscal 2004"), our ten
largest customers represented approximately 50% and 44% of consolidated net
sales, respectively. These customers comprised approximately 49% and 52% of
consolidated accounts receivable at March 31, 2005 and 2004, respectively. Sales
to The David J. Joseph Company, our largest customer and an agent for steel
mills including Nucor Corporation, represented approximately 23% and 19% of
consolidated net sales in fiscal 2005 and fiscal 2004, respectively. The loss of
any one of our significant customers could have a material adverse effect on our
results of operations and financial condition.

EXPORT SALES
In fiscal 2005 and fiscal 2004, export sales represented approximately 25%
and 29% of consolidated net sales, respectively. Receivables from foreign
customers represented approximately 10% of consolidated

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accounts receivable at both March 31, 2005 and 2004. There were no sales to any
single country that exceeded 10% of our consolidated net sales in fiscal 2005 or
fiscal 2004.

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. In many cases we also
purchase unprocessed scrap metal from smaller scrap dealers. Successful
procurement of materials is determined primarily by the price offered by the
purchaser for the raw scrap and the proximity of our 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 offers 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 or by attempting to secure scrap supply through direct
purchasing from our suppliers. 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 and could result in
lower prices for such products.

SEASONALITY AND OTHER CONDITIONS
Our operations can be adversely affected by protracted periods of inclement
weather, reduced levels of industrial production, or interruptions in
transportation services from railroads or barge lines, 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.

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 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 currently owned by us or the use thereof would not be
material to our business.

AVAILABLE INFORMATION
We make available, free of charge, through our website, www.mtlm.com, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements, and amendments to those reports as soon as
reasonably practicable after they have been electronically filed with the
Securities and Exchange Commission ("SEC"). We also make available on our
website the following corporate governance documents:

-- Audit Committee charter
-- Compensation Committee charter
-- Business Ethics Policy and Code of Conduct

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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.

BANKRUPTCY OF PREDECESSOR COMPANY
On November 20, 2000, our predecessor company and its subsidiaries
(collectively, the "Predecessor Company") filed voluntary petitions for
reorganization under Chapter 11 of the federal bankruptcy laws ("Chapter 11").
The Predecessor Company was required to seek bankruptcy reorganization as a
result of precipitous declines in scrap metal recycling prices, increased
imports of scrap metals into the U.S. and losses caused by bankruptcy filings by
some of its main customers. These factors, combined with high debt levels,
resulted in losses from operations and a drain on liquidity. The Predecessor
Company utilized Chapter 11 to strengthen its balance sheet, reduce interest
expense and terminate unfavorable leases and contracts. On June 29, 2001, Metal
Management emerged from reorganization proceedings under Chapter 11 pursuant to
the terms of a Plan of Reorganization.

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RISK FACTORS

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

THE 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
U.S. or internationally could 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, at the time.

Our business may also be adversely affected by increases in steel imports
into the U.S. 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. dollar or increased freight costs which could impact export sales.

PRICES OF COMMODITIES WE OWN MAY BE VOLATILE AND MARKETS ARE COMPETITIVE.
Although our goal is 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
(e.g., pig iron) and coke and iron ore;
-- import duties and ocean freight costs; 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
metal we process and sell to our customers. New entrants into our markets could
result in higher purchase prices and lower margins from our scrap metals.

OUR INDEBTEDNESS CONTAINS COVENANTS THAT RESTRICT OUR ABILITY TO ENGAGE IN
CERTAIN TRANSACTIONS.
Our $200 million credit agreement, as amended, due June 28, 2008 (the
"Credit Agreement") contains covenants that, among other things, restrict our
ability to:

-- incur additional indebtedness;
-- pay dividends under certain conditions;
-- enter into transactions with affiliates;
-- enter into certain asset sales;
-- engage in certain acquisitions, investments, mergers and
consolidations;
-- prepay certain other indebtedness;
-- create liens and encumbrances on our assets; and
-- engage in other matters customarily restricted in such agreements.

9

Our Credit Agreement requires us to satisfy specified financial covenants,
including a maximum leverage ratio, a minimum consolidated fixed charge coverage
ratio and a minimum tangible net worth. The leverage ratio and consolidated
fixed charge coverage ratio are tested for the twelve-month period ending each
fiscal quarter. The Credit Agreement also limits capital expenditures.

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 the Credit Agreement.
In the event of a default, the lenders could elect to declare all amounts
borrowed under the Credit Agreement, together with accrued interest, to be due
and payable.

OUR OPERATIONS PRESENT SIGNIFICANT RISK OF INJURY OR DEATH.
Because of the heavy industrial activities conducted at our facilities,
there exists a risk of serious injury or death to our employees or other
visitors of our operations, notwithstanding the safety precautions we take. 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 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 and the United Steelworkers of America. 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 Daniel W. Dienst, our Chairman, Chief Executive
Officer and President, Robert C. Larry, our Executive Vice-President and Chief
Financial Officer, and certain other key employees. 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. Dienst and Larry 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 procure 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 to wait for higher prices or slow scrap collection activities. 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 could be materially and adversely affected. In addition, a
slowdown of industrial production in the U.S. would reduce the supply of
industrial grades of scrap metal to our industry.

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 50% of
consolidated net sales in fiscal 2005. Accounts receivable balances from these
customers comprised approximately 49% of consolidated accounts receivable at
March 31, 2005. Sales in fiscal 2005 to The David J. Joseph Company represented
approximately

10

23% of consolidated net sales. The loss of any of our significant customers or
our inability to collect accounts receivables could negatively impact our
revenues and profitability.

POTENTIAL CREDIT LOSSES FROM OUR 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.

THE LOSS OF EXPORT SALES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS OR
FINANCIAL CONDITION.
Export sales accounted for 25% of consolidated net sales in fiscal 2005.
Risks associated with our export business include, among other factors,
political and economic factors, economic conditions in the world's economies,
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), freight
costs, and collection risks in some cases (such as Mexican steel mills where we
extend open credit for other than vessel shipments). Any of these factors could
result in lower export sales which may materially adversely affect our results
of operations and financial condition.

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 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 and others. 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 supplies of available unprepared ferrous
scrap tighten.

OUR DEFINED BENEFIT PENSION PLANS ARE UNDERFUNDED.
We currently maintain three defined benefit pension plans which cover
various categories of employees and retirees. Our obligations to make
contributions to fund benefit obligations under these pension plans are based on
actuarial valuations which are based on certain assumptions, including the
long-term return on plan assets and discount rate. Our defined benefit pension
plans are underfunded by approximately $3.9 million at March 31, 2005. As a
result, we will have to make additional contributions in the foreseeable future
until our defined benefit pension plans are funded in accordance with the
Employee Retirement Income Security Act ("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 environmental requirements relating to, among others:

-- the acceptance, storage, treatment, handling and disposal of solid,
hazardous, and Toxic Substances Control Act ("TSCA") waste;
-- the discharge of materials into air;
-- the management and treatment of wastewater and storm water;
-- the remediation of soil and groundwater contamination;
-- the restoration of natural resource damages; and
-- the protection of our employees' health and safety.

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

11

The nature of our business and previous operations by others at facilities
currently or formerly owned or operated or otherwise used 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
or capital improvements with regard to sites currently or formerly owned or
operated or otherwise used by us.

Environmental statutes and regulations have changed rapidly in recent years
by requiring greater and more expensive protective measures, and it is possible
that we will be subject to even more stringent environmental standards in the
future. For example, in many states there is the potential for regulation and or
legislation relating to mercury contaminants. Automobile hulks that are
purchased and processed by our industry, including us, may contain mercury
switches. We cannot estimate what legislation and or regulation will evolve, or
the effects, if any, on our business relating to mercury switches. For these
reasons and others, we cannot predict future capital expenditures for pollution
control equipment, remediation, or other initiatives that may be required 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. Failure to obtain or 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 wastes and other 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 or provide for concreting and paving at our North Haven,
Connecticut facility to address certain concerns raised by the Connecticut
Department of Environmental Protection 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 wastes or other regulated materials into the environment, we believe
that in any given year, a significant portion of our capital expenditures could
be related, directly or indirectly, to pollution control or environmental
remediation. Nevertheless, expenditures for environmentally-related capital
improvements were neither material in fiscal 2005 or prior years nor are they
currently expected to be significant in fiscal 2006. However, for the reasons
explained above, there can be no assurance that this will continue to be the
case in the future.

We do not have 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 were to incur significant
liability for environmental damage, such as a claim for soil or groundwater
remediation, 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 that we
pay to have treated or discarded. For example, we operate shredders for which
the primary feedstock is 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 to determine if it is
classified as hazardous waste before disposing of it off-site in permitted
landfills. Our other waste streams are subject to similar requirements.
Additionally, we employ significant source control programs to ensure to the
fullest extent possible that contaminants do not enter our source stream. We can
give no assurance, however, that such contaminants will be successfully removed
from our source streams and resultant recycling by-products. As a result, our
waste streams may, from time to time, be classified as a hazardous/TSCA waste in
which case we may incur higher costs for disposal.

Pre-transaction reviews of sites that we have acquired from others 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.

12

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 affect our ability to sell our properties, and of sites that we have
acquired from others, will generally require us to incur significant costs to
take advantage of selling opportunities.

We may have potential Superfund liability. Certain of our subsidiaries
have received notices from the United States Environmental Protection Agency
("EPA"), state agencies or third parties that the subsidiary has been identified
as potentially responsible for the cost of investigation and cleanup of
landfills or other sites where the subsidiary's material was shipped. In most
cases, many other parties are also named as potentially responsible parties. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or "Superfund") enables EPA and state agencies to recover from owners,
operators, generators and transporters the cost of investigation and cleanup of
sites which pose serious threats to the environment or public health. In certain
circumstances, a potentially responsible party can be held jointly and severally
liable for the cost of cleanup. In other cases, a party who is liable may only
be liable for a divisible share. Liability can be imposed even if the party
shipped materials in a lawful manner at the time of shipment and the liability
for investigation and cleanup costs can be significant, particularly in cases
where joint and several liability may be imposed.

Recent amendments to CERCLA, including the Superfund Recycling Equity Act
of 1999, have limited the exposure of scrap metal recyclers for sales of certain
recyclable material under certain circumstances. However, the recycling defense
is subject to conducting of reasonable care evaluations of current and potential
consumers.

Because CERCLA can be imposed retroactively on shipments that occurred many
years ago, and because EPA and state agencies are still discovering sites that
present problems to public heath or the environment, we can provide no assurance
that we will not become liable in the future for significant costs associated
with investigation and remediation of CERCLA waste sites.

ITEM 2. PROPERTIES

Our facilities generally are comprised of:

-- processing areas;
-- warehouses for the storage of repair parts and certain types of raw
and processed scrap;
-- covered and open storage areas for raw and processed scrap;
-- machine or repair shops for the maintenance and repair of vehicles
and equipment;
-- scales for weighing scrap;
-- loading and unloading facilities; and
-- administrative offices.

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

13

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

LITIGATION
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 business, results of
operations or financial condition. We are involved in certain matters of
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

15

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 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. or Schiavone will have sufficient resources to fund
any or all indemnifiable claims that we may assert.

We have engaged in settlement discussions with Joseph A. Schiavone Corp.,
Schiavone and the Connecticut DEP regarding the possible characterization of the
North Haven Facility, and the subsequent remediation thereof should
contamination be present at concentrations that require remedial action. We are
currently working with an independent environmental consultant to develop an
acceptable characterization plan. We cannot provide assurances that we will be
able to reach an acceptable settlement of this matter with the other parties.

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 are fully
cooperating with the subpoena and the grand jury's investigation. To date, we
have incurred approximately $0.5 million of legal fees associated with
responding to this subpoena. We are unable at this stage to determine future
legal costs or other costs to be incurred in responding to such subpoena or
other impact to us of such investigation.

Voluntary Disclosure to Department of Justice
As a result of internal audits that we conducted, we determined that
current and former employees of certain business units engaged in activities
relating to cash payments to individual industrial account suppliers of scrap
metal that may have involved violations of federal and state law. In May 2004,
we voluntarily disclosed our concerns regarding such cash payments to the U.S.
Department of Justice. Our Board of Directors appointed a special committee,
consisting of all of our independent directors, to conduct an investigation of
these activities. We are cooperating with the U.S. Department of Justice. We
have implemented policies to eliminate such cash payments to industrial
customers. During fiscal 2004, such cash payments to industrial customers
represented approximately 0.7% of our consolidated ferrous and non-ferrous yard
shipments. The fines and penalties under applicable statutes contemplate
qualitative as well as quantitative factors that are not readily assessable at
this stage of the investigation, but could be material. We are not able to
predict at this time the outcome of any actions by the U.S. Department of
Justice or other governmental authorities or their effect on us, if any, and
accordingly, we have not recorded any amounts in the financial statements. We
have incurred legal and other costs related to this matter of approximately $2.2
million in fiscal 2005. These expenses are included in general and
administrative expenses on our consolidated statement of operations.

ENVIRONMENTAL MATTERS
During the year ended March 31, 2003 ("fiscal 2003") and fiscal 2004, the
Arizona Department of Environmental Quality ("ADEQ") issued five Notices of
Violations ("NOVs") to our subsidiary Metal Management Arizona, L.L.C.
("MTLM-Arizona") for alleged violations at MTLM-Arizona's Tucson and Phoenix
facilities including: (i) not developing and submitting a "Solid Waste Facility
Site Plan"; (ii) placing ASR on a surface that does not meet Arizona's
permeability specifications; (iii) alleged failure to follow ADEQ protocol for
sampling and analysis of waste from the shredding of motor vehicles at the
Phoenix

16

facility; and (iv) use of excavated soil to stabilize railroad tracks adjacent
to the Phoenix facility. On September 5, 2003, MTLM-Arizona was notified that
ADEQ had referred the outstanding NOV issues to the Arizona Attorney General. On
April 12, 2005, we entered into a settlement agreement with the ADEQ and Arizona
Attorney General which resulted in a fine of $80 thousand. This settlement
agreement resolved all outstanding NOVs involving MTLM-Arizona.

On April 29, 1998, our subsidiary Metal Management Midwest, Inc.
("MTLM-Midwest") acquired substantially all of the operating assets of 138
Scrap, Inc. ("138 Scrap") that were used in its scrap metal recycling business.
Most of these assets were located at a recycling facility in Riverdale, Illinois
(the "Facility"). In early November 2003, MTLM-Midwest was served with a Notice
of Intent to Sue (the "Notice") by The Jeff Diver Group, L.L.C., on behalf of
the Village of Riverdale, alleging, among other things, that the release or
disposal of hazardous substances within the meaning of the CERCLA had occurred
at an approximately 57 acre property in the Village of Riverdale (which includes
the 8.8 acre Facility that was leased by MTLM-Midwest until December 31, 2003).
The Notice indicates that the Village of Riverdale intends to file suit against
MTLM-Midwest (directly and as a successor to 138 Scrap) and numerous other third
parties under one or both of CERCLA and the Resource Conservation and Recovery
Act. At this stage, we cannot predict MTLM-Midwest's potential liability, if
any, in connection with such lawsuit or any required remediation. We believe
that we have meritorious defenses to certain of the claims outlined in the
Notice and MTLM-Midwest intends to vigorously defend itself against any claims
ultimately asserted by the Village of Riverdale. In addition, although we
believe that we would be entitled to indemnification from the sellers of 138
Scrap for some or all of the obligations that may be imposed on MTLM-Midwest in
connection with this matter under the agreement governing its purchase of the
operating assets of 138 Scrap, we cannot provide assurances that any of the
sellers will have sufficient resources to fund any indemnifiable claims to which
we may be entitled.

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

No matters were submitted to our shareholders during the fourth quarter of
fiscal 2005.

17

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

On June 12, 2003, our common stock commenced trading on the Nasdaq National
Market System under the symbol "MTLM." From March 7, 2003 to June 11, 2003, our
common stock traded on the Nasdaq SmallCap Market under the symbol "MTLM." The
following table sets forth the reported high and low closing sales prices for
our common stock for the periods indicated.

Stock Split
On March 8, 2004, our Board of Directors approved a two-for-one stock split
in the form of a stock dividend. As a result of the stock split, our
stockholders received one additional share for each share of common stock held
on the record date of April 5, 2004. The additional shares of common stock were
distributed on April 20, 2004. All share and per share amounts have been
retroactively adjusted in this report to reflect the stock split.

Holders
As of May 2, 2005, we had 1,196 registered shareholders based on our
transfer agent's records. On May 2, 2005, the closing price per share of our
common stock as reported on the Nasdaq National Market System was $20.20 per
share.

Dividends
During fiscal 2005, we paid our stockholders two quarterly cash dividends
of $0.075 per share of common stock, or approximately $3.7 million in the
aggregate. Our Credit Agreement allows us to pay dividends as long as we have
excess availability of at least $30 million and the amount of dividends paid
does not exceed $20 million for any consecutive 12 month period. We anticipate
that our Board of Directors will continue to declare cash dividends, however,
the continuance of cash dividends is not guaranteed and is dependent on many
factors some of which are outside of our control.

Unregistered Sales of Common Stock
During fiscal 2005, we sold 1,024,000 shares of our common stock pursuant
to exercise of warrants held by our employees and directors. There were 51
exercise transactions in fiscal 2005 and the average exercise price for each
transaction was $4.09 per share. We received proceeds of approximately $4.2
million from these sales and used the proceeds to repay borrowings outstanding
under our Credit Agreement. The sales are exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as the grant of
warrants, and the issuance of shares of common stock upon exercise of such
warrants, were made to a limited number of our employees and directors without
public solicitation.

18

Issuer Purchases of Securities
We did not repurchase any equity securities during the fourth quarter of
fiscal 2005.

Securities Authorized for Issuance Under Existing Equity Compensation Plans
The information under the heading "Securities Authorized for Issuance Under
Existing Equity Compensation Plans" in our definitive proxy statement for the
annual meeting of stockholders to be filed with the SEC is incorporated herein
by reference.

19

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the consolidated financial statements and the related notes thereto included in
Part IV, Item 15 of this report and the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included in Part II, Item 7 of this report. The selected financial data
presented below is not necessarily indicative of the future results of our
operations or financial performance.

We adopted fresh-start accounting in connection with our emergence from
bankruptcy on June 29, 2001. Under fresh-start accounting, 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 consolidated
financial statements as of June 30, 2001. Since fresh-start accounting
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. All
share and per share amounts for the reorganized company have been restated to
reflect the April 20, 2004 two-for-one stock split.

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

(a) Fiscal 2004 and 2005 includes stock-based compensation of $1.0 million and
$4.8 million, respectively.

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

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

(d) The three months ended June 30, 2001 includes $145.7 million of income
related to the discharge of indebtedness in accordance with the Plan of
Reorganization.

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

21

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

This Form 10-K includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-K which address
activities, events or developments that 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 15 of this report.

OVERVIEW
We are one of the largest domestic scrap metal recycling companies with
approximately 40 facilities in 15 states. We enjoy leadership positions in many
major metropolitan markets, such as Birmingham, Chicago, Cleveland, Denver,
Hartford, Houston, Memphis, Newark, New Haven, Phoenix, Pittsburgh, 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. We operate in one reportable segment, the scrap metal
recycling industry.

Our operations primarily involve the collection and processing of ferrous
and non-ferrous scrap 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 in Newark, New Jersey.

During the period from November 20, 2000 to June 29, 2001, we operated our
business as a debtor-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the District of Delaware. On June 29, 2001, the Plan
of Reorganization became effective and we emerged from bankruptcy. We reflected
the terms of the Plan in our consolidated financial statements by adopting the
fresh-start provisions of American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" as of June 30, 2001. Therefore, historical financial
statements prior to June 30, 2001 are not comparable to our current financial
statements.

DEVELOPMENTS IN FISCAL 2005
On March 8, 2004, our Board of Directors approved a two-for-one stock split
in the form of a stock dividend. The stock dividend was paid on April 20, 2004
to shareholders of record on April 5, 2004. All share and per share amounts have
been retroactively adjusted in this report to reflect the stock split.

As a result of internal audits that we conducted, we determined that
current and former employees of certain business units engaged in activities
relating to cash payments to individual industrial account suppliers of scrap
metal that may have involved violations of federal and state law. In May 2004,
we voluntarily disclosed our concerns regarding such cash payments to the U.S.
Department of Justice. Our Board of Directors appointed a special committee,
consisting of all of our independent directors, to conduct an investigation of
these activities. We are cooperating with the U.S. Department of Justice. We
have

22

implemented policies to eliminate such cash payments to industrial customers.
The fines and penalties under applicable statutes contemplate qualitative as
well as quantitative factors that are not readily assessable at this stage of
the investigation, but could be material. We are not able to predict at this
time the outcome of any actions by the U.S. Department of Justice or other
governmental authorities or their effect on us, if any, and accordingly, we have
not recorded any amounts in the financial statements.

On June 28, 2004, we entered into a new credit agreement with a consortium
of lenders led by LaSalle Bank, N.A. (the "Credit Agreement"). The Credit
Agreement, as amended, provides for maximum borrowings of $200 million with a
maturity date of June 28, 2008. Proceeds from the Credit Agreement were utilized
to repay the amounts outstanding under our prior credit agreement and an $18
million term loan.

On September 3, 2004, Michael W. Tryon resigned from all responsibilities
with the company including the positions of President and Chief Operating
Officer. Effective September 3, 2004, Daniel W. Dienst, Chairman and Chief
Executive Officer, was appointed President. We eliminated the position of Chief
Operating Officer.

On November 24, 2004, our Board of Directors declared a cash dividend of
$0.075 per share. This was the first cash dividend declared in our history. On
February 3, 2005, our Board of Directors declared a cash dividend of $0.075 per
share. The aggregate cash dividends paid in fiscal 2005 was approximately $3.7
million.

In January 2005, we entered into a joint venture agreement with Houchens
Industries, Inc. to form Metal Management Nashville, LLC. This 50% owned joint
venture operates scrap metal recycling businesses in Nashville, Tennessee and
Bowling Green, Kentucky. We contributed approximately $8.8 million in cash in
addition to marketing, operational and development expertise to the joint
venture. Houchens Industries, Inc. made an equal capital contribution in a
combination of real estate, cash and other assets to form the joint venture. The
Nashville, Tennessee operation is a start-up operation that will develop
gradually and will include an automobile shredding operation by the second
calendar quarter in 2006.

In March 2005, we entered into a joint venture agreement with Donjon Marine
Company, Inc. to form Port Albany Ventures LLC. This 50% owned joint venture
acquired substantially all of the assets of an existing business that offers
stevedoring and marine services, on the Hudson River in Albany, New York, in fee
for service arrangements and is generating annual revenues of approximately $10
million with 33 employees. We contributed approximately $6.6 million in cash in
addition to marketing and operational expertise to the joint venture. Donjon
Marine Company, Inc. made an equal cash capital contribution to form the joint
venture.

RESULTS OF OPERATIONS
We achieved record results in fiscal 2005 as a result of favorable market
conditions in the scrap metal industry. Revenues of $1.7 billion in fiscal 2005
were 57.1% higher than fiscal 2004 due to increased sales prices and volumes.
The scrap metal industry benefited from increased demand from both domestic and
international consumers. International demand for scrap metals benefited, in
part, from a weaker U.S. dollar. Scrap inflows to our facilities were aided by
increased domestic manufacturing production and higher prices, which attracted
more obsolete grades of scrap.

In fiscal 2005, our net income was $92.3 million, which was 79.5% higher
than fiscal 2004. As a result, we generated positive cash flow which enabled us
to reduce and eliminate borrowings outstanding under our Credit Agreement in the
fourth quarter and enabled our Board of Directors to declare two cash dividends
for our shareholders.

23

The following table sets forth selected statement of operations and sales
volume data for the past three fiscal years.

STATEMENT OF OPERATIONS SELECTED ITEMS ($ IN THOUSANDS)

FISCAL 2005 COMPARED TO FISCAL 2004

NET SALES
Consolidated net sales increased by $618.5 million (57.1%) to $1.7 billion
in fiscal 2005 compared to consolidated net sales of $1.1 billion in fiscal
2004. The increase in consolidated net sales was primarily due to higher average
selling prices for both ferrous and non-ferrous products and also due to
increases in metals processed and sold.

Ferrous Sales
Ferrous sales increased by $451.4 million (58.9%) to $1.2 billion in fiscal
2005 compared to ferrous sales of $766.7 million in fiscal 2004. The increase
was attributable to higher average selling prices combined with an increase in
sales volumes. The average selling price for ferrous products was approximately
$261 per ton in fiscal 2005 which represents an increase of approximately $87
per ton (49.9%) from fiscal 2004. 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 $214 per ton
in fiscal 2005 compared to approximately $143 per ton in fiscal 2004.

24

Sales volumes during fiscal 2005 benefited from higher domestic demand for
our ferrous scrap and high scrap prices that increased the flows of scrap into
our yards. Domestic demand and scrap prices were generally favorable throughout
fiscal 2005. Domestic demand for scrap metal has also been favorably impacted by
higher prices for scrap substitute products such as DRI and HBI relative to
obsolete grades of scrap metal, and by lower levels of imports of scrap metal to
the U.S. occasioned by considerations including a relatively weaker U.S. dollar.

Non-ferrous Sales
Non-ferrous sales increased by $152.2 million (59.7%) to $406.9 million in
fiscal 2005 compared to non-ferrous sales of $254.7 million in fiscal 2004. The
increase was due to higher average selling prices combined with an increase in
sales volumes. In fiscal 2005, the average selling price for non-ferrous
products increased by approximately $0.21 per pound to $0.81 per pound and
non-ferrous sales volumes increased by 74.8 million pounds compared to fiscal
2004.

Our non-ferrous operations have benefited from rising prices for aluminum,
copper and stainless steel (nickel base metal). The increase in non-ferrous
prices is evident in data published by the London Metals Exchange ("LME") and
COMEX. According to LME data, average prices for nickel and aluminum were 25%
and 28%, respectively, higher in fiscal 2005 compared to fiscal 2004. According
to COMEX data, average prices for copper were 45% higher in fiscal 2005 compared
to fiscal 2004.

Our non-ferrous sales volumes increased due to our efforts to expand that
product line and reflected greater demand from our non-ferrous consumers. In
fiscal 2004, domestic supply of non-ferrous metals was impacted by lower output
from U.S. industrial production and international demand was lower compared to
fiscal 2005. The recent improvement in the U.S. economy, coupled with improving
economies in other countries, led to increased supply and demand for non-ferrous
products, mainly in copper, aluminum and stainless steel.

Our non-ferrous sales are also impacted by the mix of non-ferrous 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
generally higher than other non-ferrous metals.

Brokerage Sales
Brokerage ferrous sales increased by $11.6 million (27.1%) to $54.1 million
in fiscal 2005 compared to brokerage ferrous sales of $42.5 million in fiscal
2004. The increase was due to higher average selling prices, partially offset by
a decrease in sales volumes. In fiscal 2005, the average sales price for ferrous
brokerage products increased by approximately $107 per ton (76.4%) to $247 per
ton compared to fiscal 2004.

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 increased by $1.4 million (66.1%) to $3.4
million in fiscal 2005 compared to brokerage non-ferrous sales of $2.0 million
in fiscal 2004. The increase was due to an increase in the average selling price
of $0.60 per pound, partially offset by a decrease in sales volumes. 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 are primarily derived from our stevedoring and bus dismantling
operations. Stevedoring is a fee for service business primarily associated with
our dock operations at Port Newark. The increase in other sales in fiscal 2005
is a result of higher stevedoring revenue, which increased by $2.9 million
compared to fiscal 2004.

25

GROSS PROFIT
Gross profit was $241.3 million in fiscal 2005 compared to gross profit of
$160.4 million in fiscal 2004. The improvement in the amount of gross profit
earned was due to higher material margins per ton realized on both ferrous and
non-ferrous products sold, partially offset by higher processing expenses.
However, gross profit as a percentage of sales decreased slightly in fiscal 2005
due to material costs which increased greater than average sales prices and
increased transportation costs.

Processing costs on a per unit basis increased mainly due to higher
freight, labor, repairs, maintenance, rent, fuel and operating supplies costs.
Freight expenses were higher due to higher freight rates and a greater
percentage of sales accomplished on delivered terms (for which we pay freight)
during fiscal 2005. The increase in labor costs was due to additional headcount
and overtime resulting from the increasing demand for our products. The increase
in repairs, maintenance, fuel and operating supplies resulted from additional
tons of scrap metal processed. The increase in rental expense was due to our
decision to acquire new material handling equipment financed through operating
leases which contain attractive terms compared to purchasing the equipment.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $79.8 million in fiscal 2005
compared to general and administrative expenses of $61.0 million in fiscal 2004.
The increase resulted from higher compensation expense, medical claims expense,
professional fees and stock-based compensation.

Compensation expense in fiscal 2005 increased by $5.2 million due to
accruals recorded in connection with employee incentive compensation plans and
$2.3 million due to higher salaries compared to fiscal 2004. The employee
incentive compensation plans are generally measured as a function of return on
net assets. We recorded $17.6 million of expense in connection with the employee
incentive compensation plans in fiscal 2005 compared to $12.4 million of expense
in fiscal 2004.

Medical claims were higher by $1.0 million in fiscal 2005 compared to
fiscal 2004. We are self-insured for health insurance for most of our employees.

Professional fees were $4.2 million higher in fiscal 2005 compared to
fiscal 2004. The increase was due to $2.2 million of legal fees and related
costs resulting from the investigations performed in connection with our
voluntary disclosure to the U.S. Department of Justice regarding cash payments
made to certain industrial account suppliers (see Part I, Item 3 of this report)
and $1.4 million of professional fees incurred in connection with Sarbanes-Oxley
compliance.

Stock-based compensation expense was $4.8 million in fiscal 2005 compared
to stock-based compensation expense of $1.0 million in fiscal 2004. The increase
was due to expense associated with restricted stock grants made since March 31,
2004 and expense associated with restricted stock grants made in January 2004
for which we have incurred a full year of expense in fiscal 2005. Stock-based
compensation expense is related to awards of restricted stock granted to
employees. The restricted stock generally vests over a period of 3 to 5 years
and is subject to forfeiture if certain employment conditions are not satisfied.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $18.6 million in fiscal 2005
compared to depreciation and amortization expense of $18.2 million in fiscal
2004. Our depreciation expense remained relatively unchanged due to our decision
to acquire new material handling equipment financed through operating leases
which contain attractive terms compared to purchasing the equipment.

NON-CASH AND NON-RECURRING EXPENSE
Non-cash and non-recurring expense was $6.2 million in fiscal 2004. In
January 2004, we implemented a management realignment. This management
realignment resulted in the recognition of $6.2 million of non-recurring expense
primarily in connection with aggregate severance payments, benefits, and expense
associated with the acceleration of vesting of restricted stock.

26

INCOME FROM JOINT VENTURES
Income from joint ventures was $14.2 million in fiscal 2005 compared to
income from joint ventures of $8.3 million in fiscal 2004. Income recognized
from joint ventures primarily represents our 28.5% share of income from
Southern. The increase in income was due to the favorable scrap markets in
fiscal 2005. Southern is primarily a processor of ferrous metals and its results
benefited from increased demand and strong market conditions.

INTEREST EXPENSE
Interest expense was $3.3 million in fiscal 2005 compared to interest
expense of $6.9 million in fiscal 2004. The decrease was a result of less debt
offset in part by higher effective interest rates. Average debt was
approximately $37.1 million in fiscal 2005 compared to average debt of
approximately $72.0 million in fiscal 2004.

Our effective interest rate was 22 basis points higher in fiscal 2005
compared to fiscal 2004 due to increases in market interest rates and higher
undrawn facility fees resulting from increased availability under our Credit
Agreement.

LOSS ON DEBT EXTINGUISHMENT
In fiscal 2005, we recognized a loss on debt extinguishment of $1.7 million
associated with the repayment of our previous credit agreement with proceeds
from the Credit Agreement (see "Liquidity and Capital Resources -
Indebtedness"). This amount represents a write-off of a portion of the
unamortized deferred financing costs associated with the previous credit
agreement.

In fiscal 2004, we recognized a loss on debt extinguishment of $0.4 million
associated with the repurchase and redemption of $31.5 million, 12.75% junior
secured notes in August 2003 and September 2003. This amount represents a
premium paid to accomplish the repurchase of the junior secured notes.

INCOME TAXES
In fiscal 2005, we recognized income tax expense of $60.2 million resulting
in an effective tax rate of 39.5%. In fiscal 2004, our income tax expense was
$23.8 million resulting in an effective tax rate of 31.6%. The effective tax
rate differs from the federal statutory rate mainly due to state taxes and
permanent tax items. The increase in the effective tax rate is due to certain
elements of executive compensation that are non-deductible for tax purposes.

Our cash taxes paid have been significantly lower than our income tax
expense due to the utilization of net operating loss ("NOL") carryforwards and
other deferred tax assets. As a result of our strong operating performance, we
fully utilized our federal NOL carryforwards during fiscal 2005 which will
increase our future cash tax payment obligations.

NET INCOME
Net income was $92.3 million in fiscal 2005 compared to net income of $51.4
million in fiscal 2004. Net income increased due to higher material margins
realized on both ferrous and non-ferrous products, higher income from joint
ventures, and lower interest expense.

FISCAL 2004 COMPARED TO FISCAL 2003

NET SALES
Consolidated net sales increased by $313.4 million (40.7%) to $1.1 billion
in fiscal 2004 compared to consolidated net sales of $770.0 million in fiscal
2003. The increase in consolidated net sales was primarily due to higher average
selling prices for both ferrous and non-ferrous products.

Ferrous Sales
Ferrous sales increased by $274.0 million (55.6%) to $766.7 million in
fiscal 2004 compared to ferrous sales of $492.7 million in fiscal 2003. The
increase was attributable to higher average selling prices combined with an
increase in sales volumes. The average selling price for ferrous products was
approximately $174 per

27

ton in fiscal 2004 which represents an increase of $55 per ton (46.2%) from
fiscal 2003. According to AMM, the average price for #1 Heavy Melting Steel
Scrap - Chicago (which is a common indicator for ferrous scrap) was
approximately $143 per ton in fiscal 2004 compared to approximately $97 per ton
in fiscal 2003. Additionally, export prices for ferrous scrap increased in
fiscal 2004 partly due to higher ocean freight costs.

International demand in fiscal 2004 was favorable due in part to the
weakening U.S. dollar. The strong international demand was evident in data
released by the U.S. Commerce Department, which showed that U.S. exports of
ferrous scrap for calendar 2003 were approximately 11.8 million tons, an
increase of 20% from calendar 2002. Domestic demand for scrap metal in fiscal
2004 was favorable despite reduced levels of steel production because of tighter
supplies of prompt industrial grades of scrap metal. Domestic demand for scrap
metal was also favorably impacted by higher prices for scrap substitute products
such as DRI and HBI relative to obsolete grades of scrap metal, and by lower
levels of imports of scrap metal to the U.S.

Non-ferrous Sales
Non-ferrous sales increased by $49.2 million (23.9%) to $254.7 million in
fiscal 2004 compared to non-ferrous sales of $205.5 million in fiscal 2003. The
increase was due to higher average selling prices partially offset by lower
sales volumes. In fiscal 2004, the average selling price for non-ferrous
products increased by approximately $0.14 per pound to $0.60 per pound and
non-ferrous sales volumes decreased by 17.7 million pounds compared to fiscal
2003. Non-ferrous unit shipments declined in fiscal 2004 primarily due to our
decision to curtail wire-chopping operations.

Our non-ferrous operations benefited from rising prices for aluminum,
copper and stainless steel (nickel base metal). The increase in non-ferrous
prices is evident in data published by LME and COMEX. According to LME data,
average prices for nickel and aluminum were 53% and 10%, respectively, higher in
fiscal 2004 compared to fiscal 2003. According to COMEX data, average prices for
copper were 28% higher in fiscal 2004 compared to fiscal 2003. However, the
supply for non-ferrous metals in fiscal 2004 were lower than prior years due to
lower than average output from U.S. industrial production, especially in the
aerospace and telecommunications industries, which also caused a decrease in
sales volumes. Competition from China resulted in lower volumes of copper and
aluminum wire being processed and sold from our wire-chopping operation. As a
result, we have significantly curtailed our wire-chopping operation, choosing
instead in many cases to sell unprocessed copper and aluminum abroad.

Our non-ferrous sales are also impacted by the mix of non-ferrous 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
generally higher than other non-ferrous metals.

Brokerage Sales
Brokerage ferrous sales decreased by $12.3 million (22.4%) to $42.5 million
in fiscal 2004 compared to brokerage ferrous sales of $54.8 million in fiscal
2003. The decrease was primarily a result of changes to our business in Ohio
that resulted in reduced sales to certain of our domestic brokerage customers.
The decrease in brokered ferrous volume was partially offset by an increase in
brokered ferrous sales price per ton. 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 $2.2 million (52.4%) to $2.0
million in fiscal 2004 compared to brokerage non-ferrous sales of $4.2 million
in fiscal 2003. The decrease was due to volume declining by 6.2 million pounds
offset by an increase in the average selling price of $0.05 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.

28

Other Sales
Other sales are primarily derived from our stevedoring and bus dismantling
operations. Stevedoring operations are performed as a fee for service business
primarily associated with our dock operations at Port Newark. The increase in
other sales in fiscal 2004 was due to growth in these businesses.

GROSS PROFIT
Gross profit was $160.4 million in fiscal 2004 compared to gross profit of
$105.1 million in fiscal 2003. The improvement in gross profit was due to higher
material margins on both ferrous and non-ferrous products sold offset in part by
higher processing expenses.

Processing costs on a per unit basis increased mainly due to higher
freight, labor, repairs, maintenance and waste removal costs. Freight expenses
were higher due to an increase in the number of vessels shipped and higher
vessel freight costs. The increase in labor costs was due to additional overtime
and higher medical claims expenses. Overtime increased due to higher demand and
unit shipments for our products. The increase in repairs, maintenance and waste
removal costs resulted from additional tons of scrap metal processed.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $61.0 million in fiscal 2004
compared to general and administrative expenses of $50.5 million in fiscal 2003.
The increase resulted from higher compensation expense, medical claims expense,
professional fees and stock-based compensation expense.

The increase in compensation expense was from accruals recorded in
connection with employee incentive compensation plans. The compensation plans
are generally measured as a function of return on net assets. We recorded $11.2
million of expense in fiscal 2004 in connection with the employee incentive
compensation plans compared to $6.2 million of expense in fiscal 2003.

We are self-insured for health insurance for most of our employees. Medical
claims and premiums were higher by $1.3 million in fiscal 2004 compared to
fiscal 2003. Professional fees were $1.3 million higher in fiscal 2004 due to
increases in director, legal and accounting fees.

In fiscal 2004, we recognized stock-based compensation expense of $1.0
million related to awards of restricted stock and options granted to employees.
The restricted stock generally vests over a period of 3 to 5 years and is
subject to forfeiture if certain employment conditions are not satisfied. In
fiscal 2003, stock-based compensation expense of $35,000 was recognized on
warrants which were granted to a consultant.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $18.2 million in fiscal 2004
compared to depreciation and amortization expense of $17.5 million in fiscal
2003. The increase was due to depreciation expense recorded on capital
expenditures made in fiscal 2004.

NON-CASH AND NON-RECURRING EXPENSE (INCOME)
Non-cash and non-recurring expense was $6.2 million in fiscal 2004 compared
to non-cash and non-recurring income of $0.7 million in fiscal 2003. In January
2004, we implemented a management realignment. This management realignment
resulted in the recognition of $6.2 million of non-recurring expense in fiscal
2004 primarily in connection with aggregate severance payments, benefits, and
expense associated with the acceleration of vesting of restricted stock. In
fiscal 2002, we recorded an impairment charge of $3.1 million related to the
exit from our former MacLeod operations. 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 resulting in non-cash and non-recurring income
during this period.

29

INCOME FROM JOINT VENTURES
Income from joint ventures was $8.3 million in fiscal 2004 compared to
income from joint ventures of $3.1 million in fiscal 2003. Income recognized
from joint ventures primarily represents our 28.5% share of income from
Southern. The increase in income was due to the favorable scrap markets in
fiscal 2004. Southern is primarily a processor of ferrous metals and its results
benefited from increased demand and higher selling prices. Income in fiscal 2003
from Southern includes the repayment of a $1.5 million note receivable for which
we had previously reserved.

INTEREST EXPENSE
Interest expense was $6.9 million in fiscal 2004 compared to interest
expense of $11.1 million in fiscal 2003. The decrease was a result of lower
borrowings and interest rates. Our average borrowings under our credit facility
was approximately $62.8 million in fiscal 2004 which was $26.2 million less than
fiscal 2003.

Our average interest rate on indebtedness during fiscal 2004 was
approximately 72 basis points lower than our average interest rate on
indebtedness during fiscal 2003. This was primarily due to the repurchase and
redemption of $31.5 million of 12.75% junior secured notes in August and
September 2003, which was funded from borrowings under our credit facility.

(LOSS) GAIN ON DEBT EXTINGUISHMENT
In fiscal 2004, we recognized a loss on debt extinguishment of $0.4 million
associated with the repurchase and redemption of our $31.5 million, 12.75%
junior secured notes in August 2003 and September 2003. This amount represents a
premium paid to accomplish the repurchase of the junior secured notes.

In fiscal 2003, we recognized a gain on debt extinguishment of $0.6 million
associated with the repurchase of $2.4 million par amount of junior secured
notes at a discount in May 2002.

INCOME TAXES
In fiscal 2004, our income tax expense was $23.8 million resulting in an
effective tax rate of 31.6%. The effective tax rate differs from the statutory
rate primarily due to state income taxes and tax benefits associated with export
sales.

In fiscal 2003, our income tax expense was $12.8 million resulting in an
effective tax rate of 38.4%. In December 2002, we finalized and filed our
federal income tax return for the year ended March 31, 2002 and made an election
that increased the amount of predecessor company NOL carryforwards utilized.
Consequently, the effective income tax rate was higher due to the increase in
the amount of predecessor company NOL carryforwards utilized.

NET INCOME
Net income was $51.4 million in fiscal 2004 compared to net income of $20.5
million in fiscal 2003. Net income increased due to higher material margins on
ferrous products sold, income from joint ventures, lower interest expense and a
lower effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES
Our financial condition strengthened during fiscal 2005. At March 31, 2005,
our total indebtedness was $2.5 million (primarily a single property real estate
mortgage), a decrease of $41.8 million from March 31, 2004. We had no borrowings
outstanding on our Credit Agreement and had cash and cash equivalents of $52.8
million at March 31, 2005. Our primary source of working capital is collections
from customers supplemented by financing under our Credit Agreement.

Cash Flows
In fiscal 2005, our operating activities generated net cash of $117.8
million compared to net cash generated of $54.9 million in fiscal 2004. Cash
generated by operating activities during fiscal 2005 was comprised of $145.5
million of cash generated from net income, adjusted for non-cash items, offset
by investments in working capital of $27.7 million. The working capital increase
was mainly due to higher

30

accounts receivable ($8.1 million), higher inventories ($16.2 million) and lower
accounts payable ($11.5 million). The increase in accounts receivable was due to
higher sales prices in fiscal 2005 compared to fiscal 2004. Inventories
increased due to higher purchase prices for scrap metals in fiscal 2005 compared
to fiscal 2004. The decrease in accounts payable was due to timing of payments
of balances owed in March 2005 compared to March 2004.

We used $29.4 million in net cash for investing activities in fiscal 2005
compared to net cash used of $15.6 million in fiscal 2004. In fiscal 2005,
purchases of property and equipment were $15.6 million, while we generated $1.3
million of cash from the sale of redundant fixed assets, including a small
parcel of land in Arizona. In addition, we made $15.4 million of investments
into joint ventures including investments associated with Port Albany Ventures
LLC and Metal Management Nashville, LLC.

During fiscal 2005, we used $36.7 million of net cash for financing
activities compared to net cash used of $39.0 million in fiscal 2004. We reduced
debt by $41.8 million through cash generated from operations. We paid cash
dividends of $3.7 million and received $6.0 million of cash from the exercise of
stock options and warrants.

Indebtedness
The Credit Agreement is a revolving credit and letter of credit facility
that supports our working capital requirements and is also available for general
corporate purposes. Borrowing costs are based on variable rates tied to the
prime rate plus a margin or the London Interbank Offered Rate ("LIBOR") plus a
margin. The margin is based on our leverage ratio (as defined in the Credit
Agreement) as determined for the trailing four fiscal quarters. Based on our
current leverage ratio, our LIBOR and prime rate margins are 125 basis points
and 0 basis points, respectively.

Borrowings under the Credit Agreement are generally subject to borrowing
base limitations based upon a formula equal to 85% of eligible accounts
receivable plus the lesser of $65 million or 70% of eligible inventory.
Inventories cannot represent more than 40% of the total borrowing base. A
security interest in substantially all of our assets and properties, other than
equipment, fixtures and real property, unless and until the average excess
availability for any two consecutive months is less than $10 million, has been
granted to the agent for the lenders as collateral against our obligations under
the Credit Agreement. Pursuant to the Credit Agreement, we pay a fee on the
undrawn portion of the facility that is determined by the leverage ratio. As of
March 31, 2005, that fee was .25% per annum.

Under the Credit Agreement, we are required to satisfy specified financial
covenants, including a maximum leverage ratio of 2.50 to 1.00, a minimum
consolidated fixed charge coverage ratio of 1.50 to 1.00 and a minimum tangible
net worth of not less than the sum of $110 million plus 25% of consolidated net
income earned in each fiscal quarter. The leverage ratio and consolidated fixed
charge coverage ratio are tested for the twelve-month period ending each fiscal
quarter. The Credit Agreement also limits capital expenditures to $20 million
for the twelve-month period ending each fiscal quarter. A recent amendment to
our Credit Agreement permits capital expenditures of up to $40 million in fiscal
2006. We intend in fiscal 2006 to rebuild our shredder in Newark, invest in
upgrading equipment and technology deployed in our Aerospace operations, install
induction separation systems at five shredding facilities and to purchase leased
land in Phoenix, among other strategies.

The Credit Agreement contains restrictions which, among other things, limit
our ability to (i) incur additional indebtedness; (ii) pay dividends under
certain conditions; (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) engage in other matters
customarily restricted in such agreements. As of March 31, 2005, we were in
compliance with all financial covenants contained in the Credit Agreement. As of
May 18, 2005, we had no outstanding borrowings under the Credit Agreement, and
had undrawn availability of approximately $190.9 million.

31

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 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.

Future Capital Requirements
We expect to fund our working capital needs, interest and dividend payments
and capital expenditures over the next twelve months with cash generated from
operations, supplemented by undrawn borrowing availability under our Credit
Agreement. Our future cash needs will be driven by working capital requirements,
planned capital expenditures and acquisition objectives, should attractive
acquisition opportunities present themselves. During fiscal 2005, we received
$6.0 million of proceeds from the exercise of stock options and warrants, and we
may receive additional cash in the future from the exercise of outstanding stock
options and warrants.

Capital expenditures were $15.6 million in fiscal 2005. Capital
expenditures are expected to be $30 to $40 million in fiscal 2006.

In addition, due to favorable financing terms made available by equipment
manufacturing vendors, we have entered into operating leases for new equipment.
Since April 2002, we have entered into 72 operating leases for equipment which
would have cost approximately $21.1 million to purchase. These operating leases
are attractive to us since the implied interest rates are lower than interest
rates under our Credit Agreement. We expect to selectively use operating leases
for new material handling equipment or trucks required by our operations.

We anticipate that our Board of Directors will continue to declare cash
dividends; however, the continuance of cash dividends is not guaranteed and
dependent on many factors some of which are beyond our control.

We believe these sources of capital will be sufficient to fund planned
capital expenditures, interest and dividend payments and working capital
requirements for the next twelve months, although there can be no assurance that
this will be the case.

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
Off-Balance Sheet Arrangements
Other than operating leases, we do not have any significant off-balance
sheet arrangements that are likely to have a current or future effect on our
financial condition, result of operations or cash flows.

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

The following table sets forth our known contractual obligations as of
March 31, 2005, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):

32

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 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 2006. Our minimum required
pension contributions for fiscal 2006 will be approximately $1.0 million.

We also enter into letters of credit in the ordinary course of operating
and financing activities. As of May 18, 2005, we had outstanding letters of
credit of $9.1 million, much of which is securing insurance policies.

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
Our primary source of revenue is from the sale of processed ferrous and
non-ferrous scrap metals. We also generate revenue from the brokering of scrap
metals or from services performed, including but not limited to tolling,
stevedoring and dismantling. Revenues from processed ferrous and non-ferrous
scrap metal sales are recognized when title passes to the customer. Revenues
relating to brokered sales are recognized upon receipt of the materials by the
customer. Revenues from services are recognized as the service is 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 $2.7 million and $1.7 million at March 31, 2005 and 2004, respectively.
Our determination of the allowance for uncollectible accounts receivable
includes a number of factors, including the age of the balance, past experience
with the customer account, changes in collection patterns and general industry
conditions.

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 own may be volatile and
markets are competitive," 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.

Goodwill
We account for goodwill and other intangible assets under Statement of
Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible
Assets." Under SFAS No. 142, goodwill is not amortized, but it is tested for
impairment at least annually, or earlier if certain events occur indicating that
the carrying value of goodwill may be impaired. Other intangible assets are also
tested for impairment at least

33

annually. If an impairment exists, a loss is recognized in an amount equal to
the excess of the carrying value over the fair value. At March 31, 2005, we
determined, based on current industry and other market information, that no
impairment existed in our goodwill or other intangible assets.

Long-lived Assets
We assess the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. 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 the
recognition of a loss representing the difference between the fair value of such
asset and its carrying value.

Self-insured Accruals
We are self-insured for medical claims for most of our employees. We are
self-insured for workers' compensation claims that involve a loss of not greater
than $350,000 per claim. Our exposure to claims is protected by stop-loss
insurance policies. We record an accrual for reported but unpaid claims and the
estimated cost of incurred but not reported ("IBNR") claims. IBNR accruals are
based on either a lag estimate (for medical claims) or on actuarial assumptions
(for workers' compensation claims).

Pension Plans
We sponsor three defined benefit pension plans for employees at certain of
our subsidiaries. Pension benefits are based on formulas that reflect the
employees' years of service and compensation during their employment period. We
recognized pension expense of $0.4 million and $0.5 million in fiscal 2005 and
2004, respectively. We currently estimate that pension expense will be $0.4
million in fiscal 2006. Pension expense is determined using certain assumptions
as required by SFAS No. 87, "Employers' Accounting for Pensions." These
assumptions include the long-term rate of return on plan assets, discount rate
and rate of compensation increases. Actual results will often differ from
actuarial assumptions because of economic and other factors.

We used a discount rate of 6.25% to compute pension expense in fiscal 2005.
The discount rate that we used reflects the rates of high-quality debt
instruments that would provide the future cash flows necessary to pay benefits
when they come due. A decrease in the discount rate of 25 basis points, from
6.25% to 6.00%, while holding all other assumptions constant, would have
resulted in an increase in our pension expense of approximately $32,000 in
fiscal 2005. We have reduced our discount rate to 5.75% at March 31, 2005 to
reflect market interest rate reductions.

We assumed that long-term returns on pension assets were 8.00% during
fiscal 2005. 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. A decrease in the expected long-term rate of
return of 25 basis points, from 8.00% to 7.75%, while holding all other
assumptions constant, would have resulted in an increase in our pension expense
of approximately $20,000 in fiscal 2005.

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.

We had previously recorded a full valuation allowance against the emergence
date net deferred tax assets, including NOL carryforwards, due to the
uncertainty regarding their ultimate realization. During fiscal 2004, we
reversed most of the valuation allowance recorded against the emergence date net
deferred tax assets because we believed it was more likely than not that these
deferred tax assets would be realized. As of March 31, 2005, we have a valuation
allowance of $1.3 million associated with certain state NOL

34

carryforwards due to either their short expiration periods or the expectation
that more likely than not these benefits will not be realized. Significant
judgment is required in these evaluations, and differences in future results
from our estimates could result in material differences in the realization of
these assets.

Contingencies
We record accruals for estimated liabilities, which include environmental
remediation, potential legal claims and IBNR 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 included in Part IV, Item 15 of this report which
contain accounting policies and other disclosures required by generally accepted
accounting principles.

RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4."
SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage), requiring that
these items be recognized as current-period charges and not capitalized in
inventory overhead. In addition, this statement requires that allocation of
fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this statement are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. We do not expect this statement to materially impact our consolidated
financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replaces it with an exception for exchanges that do not
have commercial substance. This statement specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of this
statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. We do not expect this statement to impact
our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment."
The revised statement eliminates the ability to account for share-based
compensation transactions using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." This statement instead requires that
all share-based payments to employees be valued at fair value on the grant date
and expense be recognized in the statement of operations over the applicable
vesting period. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005. We will transition to SFAS No. 123(R) using the
"modified prospective application" effective April 1, 2006. Under the "modified
prospective application," compensation costs will be recognized in the financial
statements for all new share-based payments granted after April 1, 2006.
Additionally, we will recognize compensation costs for the portion of previously
granted awards for which the requisite service has not been rendered ("nonvested
awards") that are outstanding as of the effective date over the remaining
requisite service period of the awards. The compensation expense to be
recognized for the nonvested awards will be based on the fair value of the
awards.

In October 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed
by the President. The AJCA provides a deduction for income from qualified
domestic production activities, which will be phased in from fiscal years
beginning after December 31, 2004 through 2010. In return, the AJCA also
provides for a two-year phase-out of the existing extraterritorial income
exclusion ("ETI") for foreign sales that was viewed to be inconsistent with
international trade protocols by the European Union. In December 2004, the FASB
issued Staff Position ("FSP") No. 109-1, "Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004." FSP No. 109-1
treats the deduction for income from qualified domestic production activities as
a

35

"special deduction" as described in SFAS No. 109. As such, a special deduction
has no effect on deferred tax assets and liabilities existing at the enactment
date. Rather, the impact of such a deduction will be reported in the period in
which the deduction is claimed on our tax return. We are currently evaluating
the impact the AJCA will have on our results of operations, financial condition
and our effective tax rate.

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. We do not use derivative financial
instruments.

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.

Interest Rate Risk
We are exposed to interest rate risk on our long-term fixed interest rate
indebtedness and on our floating rate borrowings. Our variable rate borrowings
consist mainly of borrowings under our Credit Agreement. As of March 31, 2005 we
had no outstanding borrowing under our Credit Agreement, but this may not always
be the case. Borrowings on our Credit Agreement bear interest at either the
prime rate of interest plus a margin 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 2005, a hypothetical increase or
decrease in interest rates by 1% would increase or decrease interest expense on
our variable borrowings by approximately $0.3 million per year, with a
corresponding change in cash flows.

Foreign Currency Risk
Although international sales accounted for 25% of our consolidated net
sales in fiscal 2005, 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. Consequently, we do not enter into any foreign currency swaps to
mitigate our exposure to fluctuations in the currency rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are set forth in Part IV, Item 15 of
this report.

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Annual Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). This evaluation was done under the
supervision and with the participation of management, including Daniel W.
Dienst, our Chairman of the Board, Chief Executive Officer ("CEO"), and
President, and Robert C. Larry, our Executive Vice President, Finance and Chief
Financial Officer ("CFO").

The evaluation of our disclosure controls and procedures by our CEO and CFO
included a review of the controls' objectives and design, the controls'
implementation by the company and the effect of the controls on

36

the information generated for use in this report. Based upon the controls
evaluation, our CEO and our CFO have concluded that, subject to the limitations
noted below, our disclosure controls and procedures are reasonably effective in
enabling us to record, process, summarize, and report information required to be
included in our periodic SEC filings within the required time period.

Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting (as such term is defined in Rule
13a-15(f) under the Exchange Act). Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of our financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of
March 31, 2005, the end of our fiscal year. Management based its assessment on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations ("COSO") of the Treadway Commission.

Based on our assessment, management has concluded that our internal control
over financial reporting was effective as of March 31, 2005.

Our independent registered public accounting firm, PricewaterhouseCoopers
LLP, audited management's assessment of the effectiveness of the company's
internal control over financial reporting as of March 31, 2005 and that report
is included under Item 15 of this report.

CEO and CFO Certifications.
As an exhibit to this report, there are "Certifications" of the CEO and
CFO. The first form of Certification is required in accordance with Section 302
of the Sarbanes-Oxley Act of 2002. This section of the annual report is the
information concerning the controls evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.

Limitations on the Effectiveness of Controls.
Our management, including our CEO and the CFO, does not expect that our
disclosure controls or our internal controls over financial reporting 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.

37

Changes in Internal Control over Financial Reporting.
There has been no change in our internal control over financial reporting
during the fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

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," "Board Meetings and Committees," "Director Nominations," "Section
16(a) Beneficial Ownership Reporting Compliance," and "Code of Ethics" in our
definitive proxy statement, which will be filed with the SEC no later than July
29, 2005.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this item is incorporated by reference from
the sections entitled "Executive Compensation," "Summary Compensation Table,"
"Option Grants in Last Fiscal Year," "Aggregated Option and Warrant Exercises in
the Last Fiscal Year and Fiscal Year-End Option and Warrant Values," "Director
Compensation," "Employment Contracts, Termination of Employment and Change-in-
Control Arrangements," "Compensation Committee Interlocks and Insider
Participation," "Compensation Committee Report on Executive Compensation," and
"Stock Price Performance Graph" in our definitive proxy statement, which will be
filed with the SEC no later than July 29, 2005.

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" and
"Securities Authorized for Issuance Under Existing Equity Compensation Plans" in
our definitive proxy statement, which will be filed with the SEC no later than
July 29, 2005.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this item is incorporated by reference from
the sections entitled "Certain Relationships and Related Transactions" and
"Certain Business Relationships" in our definitive proxy statement, which will
be filed with the SEC no later than July 29, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated by reference from
the section entitled "Proposal No. 2 - Ratification of the Appointment of
Independent Public Accountants" in our definitive proxy statement, which will be
filed with the SEC no later than July 29, 2005.

39

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

(1) Financial Statements:

(2) Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts for the
years ended
March 31, 2005, 2004 and 2003 F-29

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) See Item 15(a)(3) and separate Exhibit Index attached hereto.

(c) Not applicable.

40

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 on May 26, 2005.

METAL MANAGEMENT, INC.

By: /s/ Daniel W. Dienst
------------------------------------
Daniel W. Dienst
Chairman of the Board,
Chief Executive Officer
and President

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 May 26, 2005.

41

METAL MANAGEMENT, INC.
EXHIBIT INDEX

NUMBER AND DESCRIPTION OF EXHIBIT

2.1 Disclosure Statement with respect to First Amended Joint
Plan of Reorganization of Metal Management, Inc. and its
Subsidiary Debtors, dated May 4, 2001 (incorporated by
reference to Exhibit 2.1 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
3.1 Second Amended and Restated Certificate of Incorporation of
the Company, as filed with the Secretary of State of the
State of Delaware on June 29, 2001 (incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
3.2 Amended and Restated By-Laws of the Company adopted as of
April 29, 2003 (incorporated by reference to Exhibit 3.2 of
the Company's Annual Report on Form 10-K for the year ended
March 31, 2003).
4.1 Series A Warrant Agreement, dated June 29, 2001 by and among
Metal Management, Inc. and LaSalle Bank National
Association, as Warrant Agent (incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for
the year ended March 31, 2001).
4.2 Form of Series B Warrant Agreement (incorporated by
reference to Exhibit 4.3 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
4.3 Form of Series C Warrant Agreement (incorporated by
reference to Exhibit 4.4 of the Company's Annual Report on
Form 10-K for the year ended March 31, 2001).
4.4 Credit Agreement, dated as of June 28, 2004, among Metal
Management, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated June 28, 2004).
4.5 Amendment No. 1 to Credit Agreement, dated March 1, 2005
among Metal Management, Inc. and LaSalle Bank National
Association (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated March 1, 2005).
4.6 Amendment No. 2 to Credit Agreement, dated May 9, 2005 among
Metal Management, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K dated May 12, 2005).
10.1 Metal Management, Inc. Management Equity Incentive Plan
(incorporated by reference to Exhibit 4.2 of the Company's
Annual Report on Form 10-K for the year ended March 31,
2001).
10.2 Metal Management, Inc. 2002 Incentive Stock Plan
(incorporated by reference to Appendix A of the Company's
2002 Proxy Statement).
10.3 Employment Agreement, dated July 1, 2001 between Robert C.
Larry and the Company (incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002).
10.4 Employment Agreement, dated January 16, 2004 between Daniel
W. Dienst and the Company (incorporated by reference to
Exhibit 10.8 of the Company's Annual Report on Form 10-K for
the year ended March 31, 2004).
10.5 Employment and Non-Compete Agreement, dated April 26, 2004
between Joseph P. Reinmann and the Company (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004).
10.6 Separation and Mutual Release Agreement, dated September 2,
2004 between Michael W. Tryon and the Company (incorporated
by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2004).
10.7 Form of Outside Director Indemnification Agreement
(incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the year ended March 31,
2001).
10.8 Terms of the Metal Management, Inc. Fiscal 2005 RONA
Incentive Compensation Plan Applicable to Executive
Officers.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Registered Public Accounting Firm.

42

31.1 Certification of Daniel W. Dienst pursuant to Section
240.13a-14 of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Robert C. Larry pursuant to Section
240.13a-14 of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Daniel W. Dienst & Robert C. Larry pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have completed an integrated audit of Metal Management, Inc.'s 2005
consolidated financial statements and of its internal control over financial
reporting as of March 31, 2005 and audits of its 2004 and 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Metal Management, Inc. and its subsidiaries at March 31,
2005 and 2004, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 2005 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
under Item 15(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of financial statements 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.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in Management's Report
on Internal Control Over Financial Reporting appearing under Item 9A, that the
Company maintained effective internal control over financial reporting as of
March 31, 2005 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of March 31,
2005, based on criteria established in Internal Control -- Integrated Framework
issued by the COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.

F-1

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Chicago, Illinois
May 26, 2005

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 par value 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
(in thousands)

See accompanying notes to consolidated financial statements

F-6

METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Organization and 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 metal and obsolete scrap metal, 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 15 states. The Company's ferrous products primarily include shredded,
sheared, cold briquetted and bundled scrap metal, and other purchased scrap
metal, such as turnings, cast and broken furnace iron. The Company also
processes non-ferrous metals, including aluminum, stainless steel and other
nickel-bearing metals, copper, brass, titanium and high-temperature alloys,
using similar techniques and through application of certain of the Company's
proprietary technologies.

The Company has one reportable segment operating in the scrap metal
recycling industry, as determined in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an
Enterprise and Related Information."

Basis of Presentation
The accompanying consolidated financial statements of the Company 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. Investments in less than majority-owned companies
are accounted for using the equity method.

Reclassifications
Certain reclassifications have been made to prior year's financial
information to conform to the current year presentation. On the statements of
operations, stock-based compensation expense has been reclassed to general and
administrative expenses. 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 conformity 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
The Company's primary source of revenue is from the sale of processed
ferrous and non-ferrous scrap metals. The Company also generates revenues from
the brokering of scrap metals or from services performed, including but not
limited to tolling, stevedoring and dismantling. Revenues from processed ferrous
and non-ferrous scrap metal sales are recognized when title passes to the
customer. Revenues relating to brokered sales are recognized upon receipt of the
materials by the customer. Revenues from services are recognized as the service
is performed. Sales adjustments related to price and weight differences and
allowances for uncollectible receivables are accrued against revenues as
incurred.

F-7

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

Revenues by product category were as follows (in thousands):

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
The Company currently does not utilize any futures or forward contracts to
hedge its inventory positions or its interest rates.

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
balance, past experience with the customer account, changes in collection
patterns and general industry conditions. Allowance for uncollectible accounts
were approximately $2.7 million and $1.7 million at March 31, 2005 and 2004,
respectively.

Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Major rebuilds 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 39 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.

Goodwill and Other Intangible Assets
Goodwill is the excess of the acquisition cost of an acquired entity over
the fair value of identifiable net assets acquired. Pursuant to the provisions
of SFAS No. 142, "Goodwill and Other Intangibles," goodwill is no longer
amortized, but is subject to an impairment test annually, or earlier if certain
events occur indicating that the carrying value of goodwill may be impaired.
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.

F-8

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

Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets (including other intangible assets) in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Such assets
are evaluated 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. If an impairment exists,
the asset is written down to its estimated fair value.

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 expensed for the years ended March 31, 2005, 2004 and
2003 were $0.7 million, $1.3 million and $2.2 million, respectively. The
deferred financing cost accumulated amortization at March 31, 2005 and 2004 was
$0.5 million and $4.4 million, respectively.

Income Taxes
Income taxes are accounted for under the asset and liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." 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 U.S. Generally, the Company does not require collateral or other
security to support customer receivables. Sales to customers outside of the U.S.
are settled by payment in U.S. dollars and generally are secured by letters of
credit, except when shipping by railcar or barge to Mexico.

For the year ended March 31, 2005, the ten largest customers of the Company
represented approximately 50% of consolidated net sales. These customers
comprised approximately 49% of accounts receivable at March 31, 2005. Sales
during the year ended March 31, 2005 to The David J. Joseph Company represented
approximately 23% of consolidated net sales.

For the year ended March 31, 2005, export sales represented approximately
25% of consolidated net sales. At March 31, 2005, receivables from foreign
customers represented approximately 10% of consolidated accounts receivable.
There were no sales to any single country that exceeded 10% of consolidated net
sales during the year ended March 31, 2005.

Comprehensive Income
Comprehensive income is reported on the consolidated statement of
stockholders' equity as a component of retained earnings and consists of net
income and other gains/losses affecting stockholders' equity that, under
generally accepted accounting principles, are excluded from net income. For the
Company, the only such item is unfunded accumulated pension benefit obligations.

Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average common shares outstanding. Diluted EPS reflects the potential
dilution that could occur from the exercise of stock options and warrants and
from unvested restricted stock.

F-9

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

Fair Value of Financial Instruments
The fair values of financial instruments including other assets, accounts
payable, and current portion of long-term debt approximate the related carrying
value because of the relatively short maturity of these instruments.

The fair value of the Credit Agreement approximates its carrying value as
the facility bears a floating rate of interest based on the prime rate. The
carrying value of the Company's other borrowings approximates fair value at
March 31, 2005 and 2004.

Accounting for Stock-based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Compensation expense for stock
options and warrants is measured as the excess, if any, of the quoted market
price of the Company's common stock at the date of grant over the exercise price
of the stock option or warrant. Compensation expense for restricted stock awards
is measured at fair value on the date of grant based on the number of shares
granted and the quoted market price of the Company's common stock. Such value is
recognized as expense over the vesting period of the award. To the extent
restricted stock awards are forfeited prior to vesting, the previously
recognized expense is reversed.

The following table illustrates the pro forma effects on net income and
earnings per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to
stock-based compensation (in thousands, except for earnings per share):

- -------------------------------------
* As of the date of grant for fiscal 2005 option grants, dividends had not
yet been declared and therefore no dividend rate was used in the
assumptions used to value these option grants.

F-10

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

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.

Self-insured Reserves
The Company is self-insured for medical claims for most of its employees.
The Company is self-insured for workers' compensation claims that involve a loss
not greater than $350,000 per claim. The Company's exposure to claims is
protected by stop-loss insurance policies. The Company records an accrual for
reported but unpaid claims and the estimated cost of incurred but not reported
("IBNR") claims. IBNR accruals are based on either a lag estimate (for medical
claims) or on actuarial assumptions (for workers' compensation claims).

Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4."
SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage), requiring that
these items be recognized as current-period charges and not capitalized in
inventory overhead. In addition, this statement requires that allocation of
fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this statement are
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The adoption of this statement is not expected to materially impact
the Company's consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29." SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges of similar
productive assets and replaces it with an exception for exchanges that do not
have commercial substance. This statement specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. The provisions of this
statement are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of this statement is not
expected to materially impact the Company's consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment."
The revised statement eliminates the ability to account for share-based
compensation transactions using APB No. 25. This statement instead requires that
all share-based payments to employees be recognized as compensation expense in
the statement of operations based on their fair value over the applicable
vesting period. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005. The Company will transition to SFAS No. 123(R)
using the "modified prospective application" effective April 1, 2006. Under the
"modified prospective application," compensation costs will be recognized in the
financial statements for all new share-based payments granted after April 1,
2006. Additionally, the Company will recognize compensation costs for the
portion of previously granted awards for which the requisite service has not
been rendered ("nonvested awards") that are outstanding as of the effective date
over the remaining requisite service period of the awards. The compensation
expense to be recognized for the nonvested awards will be based on the fair
value of the awards.

In October 2004, the American Jobs Creation Act of 2004 ("AJCA") was signed
by the President. The AJCA provides a deduction for income from qualified
domestic production activities, which will be phased in from fiscal years
beginning after December 31, 2004 through 2010. In return, the AJCA also
provides for a

F-11

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

two-year phase-out of the existing extraterritorial income exclusion ("ETI") for
foreign sales that was viewed to be inconsistent with international trade
protocols by the European Union. In December 2004, the FASB issued Staff
Position ("FSP") No. 109-1, "Application of FASB Statement No. 109, Accounting
for Income Taxes, to the Tax Deduction on Qualified Production Activities
Provided by the American Jobs Creation Act of 2004." FSP No. 109-1 treats a
deduction for income from qualified production activities as a "special
deduction" as described in SFAS No. 109. As such, a special deduction has no
effect on deferred tax assets and liabilities existing at the enactment date.
Rather, the impact of such a deduction will be reported in the period in which
the deduction is claimed on the Company's tax return. The Company is currently
evaluating the impact the AJCA will have on its results of operations, financial
condition and effective tax rate.

NOTE 3 - EQUITY METHOD INVESTMENTS

The Company has investments in four joint ventures in which it owns between
28.5% and 50% of the joint venture. One of its joint venture investments is
Southern Recycling, L.L.C. ("Southern"), one of the largest scrap metals
recyclers in the Gulf Coast region, in which the Company has a 28.5% interest.

In January 2005, the Company entered into a joint venture agreement with
Houchens Industries, Inc. to form Metal Management Nashville, LLC. This 50%
owned joint venture operates scrap metal recycling businesses in Nashville,
Tennessee and Bowling Green, Kentucky. The Company contributed approximately
$8.8 million in cash in addition to marketing, operational and development
expertise to the joint venture. Houchens Industries made an equal capital
contribution in a combination of real estate, cash and other assets to form the
joint venture.

In March 2005, the Company entered into a joint venture agreement with
Donjon Marine Company, Inc. to form Port Albany Ventures LLC. This 50% owned
joint venture conducts stevedoring and marine operations on the Hudson River in
Albany, New York. The Company contributed cash of approximately $6.6 million in
addition to marketing and operational expertise to the joint venture. Donjon
Marine Company, Inc. made an equal cash capital contribution to form the joint
venture.

The following table represents summarized financial information for these
joint ventures (in thousands):

F-12

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

NOTE 4 - NON-CASH AND NON-RECURRING EXPENSE (INCOME)

During the years ended March 31, 2005, 2004 and 2003, the Company recorded
the following non-cash and non-recurring expense (income) and related reserve
activity (in thousands):

Year ended March 31, 2003 activity
During December 2002, the Company completed its exit from its MacLeod
operations and generated $0.7 million of additional 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.

Year ended March 31, 2004 activity
On January 16, 2004, the Company implemented a management realignment that
resulted in the recognition of $6.2 million of non-cash and non-recurring
expenses. The management realignment involved the resignation of Albert A. Cozzi
as the Company's Chief Executive Officer, Frank J. Cozzi as the Company's
Vice-President and President of Metal Management Midwest, Inc. and six other
employees. The Company entered into separation and release agreements with
Messrs. Albert Cozzi, Frank Cozzi and the other employees that resulted in the
payment of employee termination benefits. Certain of the termination benefits
are payable over periods up to fifteen months. The non-cash and non-recurring
expense also included $0.6 million of expense related to the accelerated vesting
of restricted stock held by Mr. Albert Cozzi.

Year ended March 31, 2005 activity
During the year ended March 31, 2005, the Company paid out a portion of the
employee termination benefits associated with management realignment that
occurred in January 2004. The remaining reserve balances are scheduled for
payment in July 2005.

F-13

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

NOTE 5 - 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 years ended March 31, 2005, 2004 and 2003, options and warrants to
purchase 340,303; 668,966; and 4,113,507 weighted average shares of common
stock, respectively, were excluded from the diluted EPS calculation. These
shares 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 three respective fiscal years referenced above, and
therefore their inclusion would have been anti-dilutive.

NOTE 6 - OTHER BALANCE SHEET 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-14

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

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

Depreciation expense was $18.5 million, $18.0 million, and $17.5 million
for the years ended March 31, 2005, 2004 and 2003, respectively.

Other Accrued Liabilities
Other accrued liabilities consist of the following at March 31 (in
thousands):

NOTE 7 - BUSINESS ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

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 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 contingent consideration was determined to be $0.1 million and was paid in
May 2004. 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) $1.0 million to goodwill.

In November 2003, the Company acquired certain scrap metal recycling assets
of H. Bixon and Sons located in New Haven, Connecticut. The aggregate purchase
consideration was $1.1 million consisting of (i) $0.9 million of cash paid at
closing, (ii) contingent consideration of up to $0.3 million per year for three
years based on the achievement of certain earnout targets, and (iii) $0.2
million of transaction costs. Earnout targets were achieved for the first year
and contingent consideration of $0.3 million was paid in December 2004. The
Company obtained independent valuations on the equipment purchased and allocated
the purchase consideration as follows: (i) $1.2 million to the fair value of
equipment, (ii) $0.2 million to goodwill, (iii) $0.1 million to a non-compete
intangible (which is being amortized over 5 years), and (iv) $0.1 million to
liabilities.

F-15

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

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

Total amortization expense for other intangible assets for the years ended
March 31, 2005, 2004 and 2003 was $159,000, $145,000 and $53,000, respectively.
Amortization expense for other intangible assets for the next five years is as
follows (in thousands):

NOTE 8 - LONG-TERM DEBT

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

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

F-16

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

Credit Agreement
In June 2004, the Company entered into a $200 million secured four-year
revolving credit and letter of credit facility, as amended, with a maturity date
of June 28, 2008 (the "Credit Agreement"). In consideration for the Credit
Agreement, the Company incurred fees and expenses of approximately $1.4 million.

Interest rates under the Credit Agreement are based on variable rates tied
to the prime rate plus a margin or the London Interbank Offered Rate ("LIBOR")
plus a margin. The margin is based on the Company's leverage ratio (as defined
in the Credit Agreement) as determined for the trailing four fiscal quarters.
Based on the Company's current leverage ratio, LIBOR and prime rate margins are
125 basis points and 0 basis points, respectively.

Borrowings under the Credit Agreement are generally subject to borrowing
base limitations based upon a formula equal to 85% of eligible accounts
receivable plus the lesser of $65 million or 70% of eligible inventory.
Inventories cannot represent more than 40% of the total borrowing base. A
security interest in substantially all of the Company's assets and properties,
other than equipment, fixtures and real property, unless and until the average
excess availability for any two consecutive months is less than $10 million, has
been granted to the agent for the lenders as collateral against the Company's
obligations under the Credit Agreement. Pursuant to the Credit Agreement, the
Company pays a fee on the undrawn portion of the facility that is determined by
the leverage ratio. As of March 31, 2005, that fee was .25% per annum.

Under the Credit Agreement, the Company is required to satisfy specified
financial covenants, including a maximum leverage ratio of 2.50 to 1.00, a
minimum consolidated fixed charge coverage ratio of 1.50 to 1.00 and a minimum
tangible net worth of not less than the sum of $110 million plus 25% of
consolidated net income earned in each fiscal quarter. The leverage ratio and
consolidated fixed charge coverage ratio are tested for the twelve-month period
ending each fiscal quarter. The Credit Agreement also limits capital
expenditures to $20 million for the twelve-month period ending each fiscal
quarter. As a result of a recent amendment to the Credit Agreement, the
Company's limit on capital expenditures was increased to $40 million for the
year ending March 31, 2006.

The Credit Agreement contains restrictions which, among other things,
limits the Company's ability to (i) incur additional indebtedness; (ii) pay
dividends under certain conditions; (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 Company assets; and (viii)
engage in 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.

Debt Issuance
In August 2003, the Company exercised a purchase option for land on which
it operates a scrap metals recycling facility in Houston, Texas. The land
purchase closed on January 21, 2004 for a purchase price of approximately $4.0
million. The Company financed $2.5 million of the purchase price from a
promissory note which bears interest at 5.50% and is due on January 1, 2009.

Debt Extinguishment
On April 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement requires the

F-17

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

classification of gains and losses from extinguishment of debt as a component of
income from operations. The Company previously recorded gains and losses from
extinguishments of debt as an extraordinary item, net of income taxes. During
the year ended March 31, 2003, the Company repurchased $2.4 million par amount
of junior secured notes and recognized an extraordinary gain. The Company
reclassified $607,000 ($359,000 net of tax) from extraordinary gain on
extinguishment of debt to gain on debt extinguishment.

On August 14, 2003, the Company purchased approximately $30.5 million par
amount of junior secured notes at a price of 101% of the principal amount, plus
accrued and unpaid interest. On September 18, 2003, the Company redeemed the
remaining $1.0 million par amount of junior secured notes at a price of 100% of
the principal amount, plus accrued and unpaid interest. The repurchase and
redemption of the junior secured notes resulted in the recognition of a $0.4
million loss on debt extinguishment during the year ended March 31, 2004. The
Company used availability under its credit agreement to fund the repurchase and
redemption of the junior secured notes. The junior secured notes were cancelled
following the redemption of the remaining notes on September 18, 2003.

On June 28, 2004, the Company paid off all balances under its previous
credit agreement with proceeds from its Credit Agreement. The Company recognized
a loss on debt extinguishment of $1.7 million associated with the repayment of
its previous credit agreement. This amount represents a write-off of a portion
of the unamortized deferred financing costs associated with the previous credit
agreement.

NOTE 9 - INCOME TAXES

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

F-18

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

Significant components of deferred tax assets and liabilities at March 31
are as follows (in thousands):

Upon emergence from bankruptcy in June 2001, the Company recorded a full
valuation allowance against the emergence date net deferred tax assets,
including net operating loss ("NOL") carryforwards, due to the uncertainty
regarding their ultimate realization. During the year ended March 31, 2004, the
Company reversed most of the valuation allowance recorded against the emergence
date net deferred tax assets because it believed it was more likely than not
that these deferred tax assets would be realized. Significant judgment is
required in these evaluations, and differences in future results from the
Company's estimates could result in material differences in the realization of
these assets. In accordance with SFAS No. 109, the reversal of the emergence
date valuation allowance reduced the excess reorganization value recorded in
fresh-start accounting to zero and the remainder was recorded as an increase to
additional paid-in capital. As of March 31, 2005, the Company has a $1.3 million
valuation allowance associated with certain state NOL carryforwards due to
either their short expiration periods or the expectation that more likely than
not these benefits will not be realized. The Company's ability to utilize NOL
carryforwards could become subject to annual limitations under Section 382 of
the Internal Revenue Code if a change of control occurs, as defined by the
Internal Revenue Code, and could result in increased income tax payment
obligations.

During the years ended March 31, 2005 and 2004, the Company recorded tax
benefits of $10.0 million and $9.9 million, respectively, related to the
exercise of stock options and warrants, as an increase to additional paid-in
capital. The tax benefits from the exercise of stock options and warrants
resulted in a reduction in taxes payable during the year ended March 31, 2005
and resulted in a lower utilization of NOL carryforwards during the year ended
March 31, 2004, but had no impact on the effective income tax rate.

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

F-19

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

NOTE 10 - EMPLOYEE BENEFIT PLANS

401(k) Plan
The Company offers a 401(k) plan covering substantially all employees. For
non-union employees, the Company provides a matching contribution equal to 50%
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 may also make a discretionary
profit sharing contribution to the 401(k) plan. Matching contributions made by
the Company amounted to $0.4 million for the year ended March 31, 2005 and $0.3
million for both the years ended March 31, 2004 and 2003. No discretionary
profit sharing contributions have been made into the 401(k) plan.

Pension Plans
The Company sponsors three defined benefit pension plans for employees at
certain of its subsidiaries. Only employees covered under collective bargaining
agreements accrue future benefits under these defined benefit pension plans.
These benefits are based either on years of service and compensation or on years
of service at fixed benefit rates. The Company's funding policy for the pension
plans is to contribute amounts required to meet regulatory requirements.

The following table sets forth pension expense (in thousands):

The components of the change in projected benefit obligation of the pension
plans are as follows at March 31 (in thousands):

The reconciliation of the beginning and ending balances of the fair value
of the assets of the pension plans are as follows at March 31 (in thousands):

F-20

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

The funded status of the pension plans are as follows at March 31 (in
thousands):

Amounts recognized in the consolidated balance sheet consist of the
following at March 31 (in thousands):

Weighted average assumptions used in the pension plans to determine benefit
obligations and net periodic benefit cost are as follows at March 31:

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

Although there were positive returns in plan assets during the past two
years, interest rates continue to decline causing an unchanged funded status of
the pension plans. As a result, the Company recorded additional minimum pension
liabilities of $0.8 million and $0.3 million during the years ended March 31,
2005 and 2004, respectively. The expected rate of return on plan assets
assumption is based upon actual historical returns, future expectations for
returns for each asset class and the effect of periodic target asset allocation
rebalancing. These expected results were adjusted for the payment of reasonable
expenses of the plan from plan assets.

The Company expects to make cash funding contributions to its pension plans
of approximately $1.0 million in the year ending March 31, 2006. The
weighted-average asset allocation of the pension plan assets by asset category
and target range are as follows:

The Company's pension plan assets are managed by outside investment
managers. The Company's investment strategy with respect to pension plan assets
is to maximize returns while preserving principal.

F-21

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

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Leases
The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease expense was approximately $12.4 million, $10.4
million and $9.7 million for the years ended March 31, 2005, 2004 and 2003,
respectively. Future minimum lease payments under non-cancelable operating
leases are as follows (in thousands):

Letters of Credit
As of March 31, 2005, the Company has outstanding letters of credit of $5.5
million. The letters of credit typically secure the rights to payment to certain
third parties (primarily insurance companies and lessors) in accordance with
specified terms and conditions.

Environmental Matters
The Company is subject to comprehensive local, state, federal and
international regulatory and statutory environmental requirements relating to,
among others, the acceptance, storage, treatment, handling and disposal of solid
waste 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 employees' health and safety. The Company believes that it and its
subsidiaries are in material compliance with currently applicable statutes and
regulations governing the protection of human health and the environment,
including employee health and safety. 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 have received notices from the United
States Environmental Protection Agency ("EPA"), state agencies or third parties
that the subsidiary has been identified as potentially responsible for the cost
of investigation and cleanup of landfills or other sites where the subsidiary's
material was shipped. In most cases, many other parties are also named as
potentially responsible parties. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund") enables EPA and state
agencies to recover from owners, operators, generators and transporters the cost
of investigation and cleanup of sites which pose serious threats to the
environment or public health. In certain circumstances, a potentially
responsible party can be held jointly and severally liable for the cost of
cleanup. In other cases, a party who is liable may only be liable for a
divisible share. Liability can be imposed even if the party shipped materials in
a lawful manner at the time of shipment and the liability for investigation and
cleanup costs can be significant, particularly in cases where joint and several
liability may be imposed.

Recent amendments to CERCLA, including the Superfund Recycling Equity Act
of 1999, have limited the exposure of scrap metal recyclers for sales of certain
recyclable material under certain circumstances. However, the recycling defense
is subject to conducting of reasonable care evaluations of current and potential
consumers.

Because CERCLA can be imposed retroactively on shipments that occurred many
years ago, and because EPA and state agencies are still discovering sites that
present problems to public heath or the

F-22

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

environment, the Company can provide no assurance that it will not become liable
in the future for significant costs associated with investigation and
remediation of CERCLA waste sites.

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 Department of
Environmental Protection 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 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
MTLM-Connecticut's potential liability in connection with this action or any
required investigation and/or remediation. The Company believes that
MTLM-Connecticut has meritorious defenses to certain of the claims asserted in
the suit and MTLM-Connecticut 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.

The Company has engaged in settlement discussions with Joseph A. Schiavone
Corp., Schiavone and the Connecticut DEP regarding the possible characterization
of the North Haven Facility, and the subsequent remediation thereof should
contamination be present at concentrations that require remedial action. The
Company is currently working with an independent environmental consultant to
develop an acceptable characterization plan. The Company cannot provide
assurances that it will be able to reach an acceptable settlement of this matter
with the other parties.

During the year ended March 31, 2003 and March 31, 2004, the Arizona
Department of Environmental Quality ("ADEQ") issued five Notices of Violations
("NOVs") to Metal Management Arizona, L.L.C. ("MTLM-Arizona"), a subsidiary of
the Company, for alleged violations at MTLM-Arizona's Tucson and Phoenix
facilities including: (i) not developing and submitting a "Solid Waste Facility
Site Plan"; (ii) placing shredder residue on a surface that does not meet
Arizona's permeability specifications; (iii) alleged failure to follow ADEQ
protocol for sampling and analysis of waste from the shredding of motor vehicles
at the Phoenix facility; and (iv) use of excavated soil to stabilize railroad
tracks adjacent to the Phoenix facility. On September 5, 2003, MTLM-Arizona was
notified that ADEQ had referred the outstanding NOV issues to the Arizona
Attorney General. On April 12, 2005, the Company entered into a settlement
agreement with the ADEQ and Arizona Attorney General which resulted in a fine of
$80 thousand. This settlement agreement resolved all outstanding NOVs involving
MTLM-Arizona.

On April 29, 1998, MTLM-Midwest, a subsidiary of the Company, acquired
substantially all of the operating assets of 138 Scrap, Inc. ("138 Scrap") that
were used in its scrap metal recycling business. Most of these assets were
located at a recycling facility in Riverdale, Illinois (the "Facility"). In
early November 2003, MTLM-Midwest was served with a Notice of Intent to Sue (the
"Notice") by The Jeff Diver Group, L.L.C., on behalf of the Village of
Riverdale, alleging, among other things, that the release or disposal of
hazardous substances within the meaning of CERCLA has occurred at an
approximately 57 acre property in the Village of Riverdale (which includes the
8.8 acre Facility that was leased by MTLM-Midwest until December 31, 2003). The
Notice indicates that the Village of Riverdale intends to file suit against
MTLM-Midwest

F-23

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

(directly and as a successor to 138 Scrap) and numerous other third parties
under one or both of CERCLA and the Resource Conservation and Recovery Act. At
this preliminary stage, the Company cannot predict MTLM-Midwest's potential
liability, if any, in connection with such lawsuit or any required remediation.
The Company believes that it has meritorious defenses to certain of the claims
outlined in the Notice and MTLM-Midwest intends to vigorously defend itself
against any claims ultimately asserted by the Village of Riverdale. In addition,
although the Company believes that it would be entitled to indemnification from
the sellers of 138 Scrap for some or all of the obligations that may be imposed
on MTLM-Midwest in connection with this matter under the agreement governing its
purchase of the operating assets of 138 Scrap, the Company cannot provide
assurances that any of the sellers will have sufficient resources to fund any
indemnifiable claims to which the Company may be entitled.

Legal Proceedings
In January 2003, the Company received a subpoena requesting that it provide
documents to a grand jury that is investigating scrap metal purchasing practices
in the four state region of Ohio, Illinois, Indiana and Michigan. The Company is
fully cooperating with the subpoena and the grand jury's investigation. The
Company is unable at this preliminary stage to determine future legal costs or
other costs to be incurred in responding to such subpoena or other impact to the
Company of such investigation.

As a result of internal audits conducted by the Company, the Company
determined that current and former employees of certain business units engaged
in activities relating to cash payments to individual industrial account
suppliers of scrap metal that may have involved violations of federal and state
law. In May 2004, the Company voluntarily disclosed its concerns regarding such
cash payments to the U.S. Department of Justice. The Board of Directors
appointed a special committee, consisting of all of its independent directors,
to conduct an investigation of these activities. The Company is cooperating with
the U.S. Department of Justice. The Company implemented policies to eliminate
cash payments to industrial customers. During the year ended March 31, 2004,
such cash payments to industrial customers represented approximately 0.7% of the
Company's consolidated ferrous and non-ferrous yard shipments. The fines and
penalties under applicable statutes contemplate qualitative as well as
quantitative factors that are not readily assessable at this stage of the
investigation, but could be material. The Company is not able to predict at this
time the outcome of any actions by the U.S. Department of Justice or other
governmental authorities or their effect on the Company, if any, and
accordingly, the Company has not recorded any amounts in the financial
statements. The Company has incurred legal and other costs related to this
matter of approximately $2.2 million during the year ended March 31, 2005. These
expenses are included in general and administrative expenses on the Company's
consolidated statement of operations.

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.

NOTE 12 - 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.

Stock Split
On March 8, 2004, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend. As a result of the stock split, the
Company's stockholders received one additional share for each share of common
stock held on the record date of April 5, 2004. The additional shares of common
stock

F-24

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

were distributed on April 20, 2004. All common share and per share amounts have
been retroactively adjusted in the financial statements and related notes in
order to reflect the stock split.

Series A Warrants
During the period from November 20, 2000 to June 29, 2001, the Company
operated its business as a debtor-in-possession subject to the jurisdiction of
the United States Bankruptcy Court for the District of Delaware. On June 29,
2001, the Plan of Reorganization ("Plan") became effective and the Company
emerged from bankruptcy.

In accordance with the Plan, the Company distributed 697,465 warrants to
purchase 1,394,930 shares of common stock (designated as "Series A Warrants").
The Series A Warrants were distributed to the predecessor company's stockholders
and are immediately exercisable with an expiration date of June 29, 2006. Each
Series A Warrant has a strike price of $10.595 per share and is exercisable into
two shares of common stock. At March 31, 2005 and 2004, there were 642,874 and
696,244 Series A Warrants outstanding, respectively.

NOTE 13 - STOCK-BASED COMPENSATION PLANS

Restricted Stock
Restricted stock grants consist of shares of the Company's common stock
which are awarded to employees. The grants are restricted such that they are
subject to substantial risk of forfeiture and to restrictions on their sale or
other transfer by the employee. During the years ended March 31, 2005 and 2004,
the Company granted 181,732 shares and 560,188 shares of restricted stock, with
a per share weighted average fair value of $26.48 and $17.61, respectively. The
Company recorded stock-based compensation expense related to restricted stock of
approximately $4.8 million and $1.0 million in the years ended March 31, 2005
and 2004, respectively.

Summarized information for restricted stock issued by the Company is as
follows:

Scheduled vesting for outstanding restricted stock at March 31, 2005 is as
follows:

Stock Option Plans
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 4,000,000
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

F-25

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

Company's employees, consultants and directors over a period of up to ten years.
The stock awards can be in the form of stock options, stock appreciation rights
or stock grants. Summarized information for the Company's stock option plans are
as follows:

Warrants
A Management Equity Incentive Plan was approved pursuant to the Plan in
which the Company issued warrants to purchase 1,975,000 shares of common stock
at an exercise price of $3.25 per share (designated as "Series B Warrants") and
warrants to purchase 1,000,000 shares of common stock at an exercise price of
$6.00 per share (designated as "Series C Warrants"). The Series B and Series C
Warrants were issued to key employees and each vested ratably over three years
and are exercisable for a period of five years and seven years, respectively,
from the grant date.

In May 2002, the Company issued, to certain employees, warrants to purchase
520,000 shares of common stock at an exercise price of $1.88 per share, and also
issued to each non-employee director a warrant to purchase 30,000 shares of
common stock at an exercise price of $3.25 per share.

F-26

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

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

The following table summarizes information about options and warrants
outstanding at March 31, 2005:

NOTE 14 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

F-27

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

- -------------------------------------
(a) 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.
(b) Reflects charges recorded for severance. See Note 4 - Non-Cash and
Non-Recurring Expense (Income).

F-28

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

F-29