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

<Table>
<S>      <C>
[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
         FOR THE FISCAL YEAR ENDED MARCH 31, 2006

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
         FOR THE TRANSITION PERIOD FROM  __________________________ TO  _________________________
</Table>

                         COMMISSION FILE NUMBER 0-14836

           ---------------------------------------------------------
                             METAL MANAGEMENT, INC.
             (Exact Name of Registrant as Specified in Its Charter)
           ---------------------------------------------------------

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

<Table>
<S>                                            <C>
325 N. LASALLE STREET, SUITE 550, CHICAGO, IL                      60610
   (Address of Principal Executive Offices)                      (Zip Code)
</Table>

       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)

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

     Indicate by check mark if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes X      No  _

     Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes  _      No X

     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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
     Large accelerated filer  _      Accelerated filer X      Non-accelerated
filer  _

     Indicate by check mark if the Registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934). Yes  _      No X

     The aggregate market value of common stock held by non-affiliates of the
Registrant was approximately $622 million as of September 30, 2005, the last
business day of the Registrant's most recently completed second fiscal quarter,
based on a closing stock price of $25.35 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 10, 2006 the Registrant had 26,053,933 shares of common stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     We expect to file a definitive proxy statement no later than July 31, 2006.
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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<PAGE>

                             METAL MANAGEMENT, INC.
                           ANNUAL REPORT ON FORM 10-K
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2006
                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                                PAGE
<S>               <C>                                                           <C>
                                       PART I
Item 1.           Business....................................................    1
Item 1A.          Risk Factors................................................    9
Item 1B.          Unresolved Staff Comments...................................   14
Item 2.           Properties..................................................   14
Item 3.           Legal Proceedings...........................................   16
Item 4.           Submission of Matters to a Vote of Security Holders.........   19

                                      PART II
Item 5.           Market for Registrant's Common Equity, Related Stockholder
                  Matters and Issuer
                  Purchases of Equity Securities..............................   20
Item 6.           Selected Financial Data.....................................   22
Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................   24
Item 7A.          Quantitative and Qualitative Disclosures About Market
                  Risk........................................................   38
Item 8.           Financial Statements and Supplementary Data.................   39
Item 9.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure....................................   39
Item 9A.          Controls and Procedures.....................................   39
Item 9B.          Other Information...........................................   40

                                      PART III
Item 10.          Directors and Executive Officers of the Registrant..........   41
Item 11.          Executive Compensation......................................   41
Item 12.          Security Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters..................   41
Item 13.          Certain Relationships and Related Transactions..............   41
Item 14.          Principal Accountant Fees and Services......................   41

                                      PART IV
Item 15.          Exhibits and Financial Statement Schedules..................   42
Signatures....................................................................   44
</Table>
<PAGE>

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 1A 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 approximately 50
recycling facilities located in 16 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 scrap 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 ferrous and non-ferrous scrap
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.

RECENT EVENTS
     For a discussion of recent events, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events" in
Part II, Item 7 of this report.

BUSINESS STRATEGY
     Our business strategy is 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 national

                                        1
<PAGE>

footprint and strong capitalization will allow us to identify, 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. 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 are
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
acquisitions. We acquired the assets of Morris Recycling, Inc. ("Morris") during
the year ended March 31, 2006 ("fiscal 2006") and a scrap metal recycling yard
in East Chicago, Indiana in May 2006.

     Investing in Our Existing Operations.  We have made significant capital
investments in our existing operations to expand capacity and 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 increase the amount of metal we recover in the form of
non-ferrous metals that are not otherwise recovered through our normal eddy
current systems. We will be installing a mega-shredder which will expand our
capacity at our Newark facility. In addition, our recent purchase of a
stevedoring crane will help expand our material handling service offerings. 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.  Our Board of Directors declared four
quarterly cash dividends of $0.075 per share during fiscal 2006. The aggregate
cash dividends paid in fiscal 2006 was approximately $7.6 million. We believe
that our cash dividends are an efficient means of distributing value to our
stockholders without imposing limitations on our ability to grow our business.
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 50 facilities in 16 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.

     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
we can 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.

                                        2
<PAGE>

     Integration and Branding Initiatives.  A component of our integration
strategy includes the development of national account and branding programs. We
believe that our strategy of creating brand awareness for the Metal Management
name will help create awareness among our customers of the size and geographic
scope of our operations and the breadth of our product offerings. We believe
this will benefit us as we expect our consumers to 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 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 in the scrap metals
industry, 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 more than 1,200 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 70 million tons of iron and steel and 8 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 our
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 56% in 2005. 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 recent
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 on certain grades of finished steel product categories.
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

                                        3
<PAGE>

ferrous scrap in EAF operations, but may be used as 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,
relative to their weight, 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 related 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,
torching, baling, briquetting or breaking. We produce a number of differently
sized and shaped products depending upon customer specifications and market
demand.

                                        4
<PAGE>

     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 hulks, 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 and comprised primarily of aluminum) from the
Zorba. The non-metallic by-product of the shredding operations, referred to as
"shredder fluff" or "auto shredder residue" 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 consumers. 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 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.

                                        5
<PAGE>

     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 publication of spot and futures prices on COMEX or the London Metals
Exchange.

EMPLOYEES
     At March 31, 2006, we employed approximately 1,734 employees, of whom
approximately 764 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.

CUSTOMERS
     In fiscal 2006, the year ended March 31, 2005 ("fiscal 2005") and the year
ended March 31, 2004 ("fiscal 2004"), our revenues generated from domestic and
foreign customers were as follows (in thousands):

<Table>
<Caption>
                                  FISCAL        FISCAL        FISCAL
                                   2006          2005          2004
                                  ------        ------        ------
<S>                             <C>           <C>           <C>
Domestic                        $ 1,112,221   $ 1,269,655   $   772,606
Foreign                             476,905       432,303       310,807
                                -----------   -----------   -----------
  Net sales                     $ 1,589,126   $ 1,701,958   $ 1,083,413
                                ===========   ===========   ===========
</Table>

     Our ten largest customers represented approximately 48%, 50% and 44% of
consolidated net sales in fiscal 2006, fiscal 2005 and fiscal 2004,
respectively. Sales to The David J. Joseph Company, our largest customer and an
agent for steel mills including Nucor Corporation, represented approximately
20%, 23% and 19% of

                                        6
<PAGE>

consolidated net sales in fiscal 2006, 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.

     In fiscal 2006, sales to customers in China and Turkey represented
approximately 13% and 11% of consolidated net sales, respectively. 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 and other
processors. 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, access to
multiple modes of transportation systems, 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. Certain steel manufacturers currently operate
scrap yards. 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 and relative prices of substitutes for ferrous scrap could
result in a decreased demand for processed ferrous scrap and could result in
lower prices and/or lower demand for our 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

                                        7
<PAGE>

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
      --   Board Nominations Process Resolutions

     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.

                                        8
<PAGE>

ITEM 1A. 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 DEMAND FROM 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 changes to general economic conditions, both
domestically and internationally. Historically, in periods of national recession
or periods of slowing economic growth in domestic or global economies, the
results from 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 or
recessions 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 negatively impact export
sales and a stronger U.S. dollar could also attract imports of scrap or scrap
substitutes.

     While volatile metals markets have generally been robust for the last three
years and to meet surging demand we have expanded infrastructure, hired
employees, and have generally added to fixed costs. When metals markets weaken,
if we are unable to reduce fixed costs commensurately, we could experience
declines in earnings. Declines in earnings could negatively affect cash flows
and capitalization and, potentially, the market price for our common stock.

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;
 --      access to and costs associated with transportation systems;
 --      the availability of imports;
 --      the availability and relative pricing of scrap metal substitutes (e.g.,
         pig iron) and coke and iron ore; and
 --      import duties, ocean freight costs, tariffs and currency exchange
         rates.

     In an increasing price environment for raw materials, competitive
conditions may limit our ability to pass on price increases to our consumers. In
a decreasing price environment for processed scrap, 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
for raw materials and lower margins from our scrap metals.

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

                                        9
<PAGE>

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.

OUR INDEBTEDNESS CONTAINS COVENANTS THAT RESTRICT OUR ABILITY TO ENGAGE IN
CERTAIN TRANSACTIONS.
     Our $300 million secured five-year revolving credit and letter of credit
facility ("New Credit Agreement") contains covenants that, among other things,
restrict our ability to:

 --      incur additional indebtedness;
 --      pay dividends or make other equity distributions 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.

     Our New Credit Agreement requires us to satisfy specified financial
covenants, including a maximum leverage ratio and an interest coverage ratio.
The leverage ratio and interest coverage ratio are tested for the twelve-month
period ending each fiscal quarter. The New Credit Agreement also limits capital
expenditures to $75 million in the year ending March 31, 2007 ("fiscal 2007")
and $65 million thereafter.

     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 New Credit
Agreement. In the event of a default, the lenders could elect to declare all
amounts borrowed under the New 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. During fiscal 2006, an
accident occurred at our facility in Newark, New Jersey that resulted in the
death of one of our employees. See "Legal Proceedings" in Part I, Item 3 of this
report.

WE MAY NOT BE ABLE TO NEGOTIATE FUTURE LABOR CONTRACTS ON FAVORABLE TERMS.
     Approximately 44% 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 or on
terms that we find desirable. 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,

                                        10
<PAGE>

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 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 48% of
consolidated net sales in fiscal 2006. Accounts receivable balances from these
customers comprised approximately 38% of consolidated accounts receivable at
March 31, 2006. Sales in fiscal 2006 to The David J. Joseph Company represented
approximately 20% of consolidated net sales. The loss of any of our significant
customers or our inability to collect accounts receivables could negatively
impact our results of operations or financial condition.

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 our
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 30% of consolidated net sales in fiscal 2006.
Sales to customers in China and Turkey represented 13% and 11%, respectively, of
consolidated net sales in fiscal 2006. 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 deliveries
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, if the supplies of available unprepared ferrous
scrap tighten, or if costs to import scrap decline precipitously.

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 $3.7 million at March 31, 2006. 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. Contributions will
negatively impact our cash flow and results of operations.

     In addition, we contribute to various multi-employer pension plans which
cover employees under collective bargaining agreements. Our contributions to
these plans were approximately $0.5 million and $0.6 million in fiscal 2006 and
2005, respectively. Our required contributions are specified in our collective
bargaining agreements. However, we may be required to fund additional amounts in
the future if one or more

                                        11
<PAGE>

of these multi-employer plans does not meet ERISA guidelines. Additional
contributions 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.

     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. See
"Legal Proceedings" in Part I, Item 3, of this report.

     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 2006 nor prior years nor are they
currently expected to be significant in fiscal 2007. 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 we believe the cost
of the premiums outweighs the benefit of coverage.

                                        12
<PAGE>

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 shredder fluff or 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. 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
("USEPA"), 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 USEPA 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.

     CERCLA, including the Superfund Recycling Equity Act of 1999, limits 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 USEPA 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.

WE ARE IMPLEMENTING A SIGNIFICANT IT CONSOLIDATION STRATEGY IN FISCAL 2007 AND
FISCAL 2008.
     Currently, we operate on two information technology platforms. In February
2006, we undertook an initiative to migrate to one of those IT platforms on a
national basis. This migration will occur during the next two fiscal years. The
cost associated with this initiative is estimated to be approximately $2
million. We currently estimate the first go-live date for this implementation at
our largest subsidiary to be on or around

                                        13
<PAGE>

September 1, 2006. Due to the significance of this undertaking, there is risk
regarding the accuracy and timing of data production while the system
consolidation project is implemented.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     None.

ITEM 2. PROPERTIES

     Our principal executive offices are located at 325 North LaSalle Street,
Suite 550, Chicago, IL 60610. Our facilities generally are comprised of:

 --      processing areas;
 --      warehouses for the storage of 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.

     The following table sets forth information regarding our principal
properties:

<Table>
<Caption>
                                                       APPROXIMATE   LEASED/
                      LOCATION                         SQUARE FEET    OWNED
                      --------                         -----------   -------
<S>                                                    <C>           <C>
Alabama
  2020 Vanderbilt Rd., Birmingham....................
                                                        1,150,073     Owned

Arizona
  3640 S. 35th Ave., Phoenix.........................
                                                        1,121,670     Owned
  1525 W. Miracle Mile, Tucson.......................
                                                          513,569     Owned

Arkansas
  1102 E Hillsboro St., El Dorado....................
                                                          137,936     Owned

Colorado
  2690 East Las Vegas St., Colorado Springs..........
                                                          522,720     Owned
  5601 York St., Denver..............................
                                                          392,040     Owned

Connecticut
  500 Flatbush Ave., Hartford........................
                                                        1,481,040    Leased
  808 Washington Ave., New Haven.....................
                                                          177,850    Leased
  234 Universal Dr., North Haven.....................
                                                        1,089,000     Owned

Illinois
  6660 S. Nashville Ave., Bedford Park...............
                                                          304,223     Owned
  2305 S. Paulina St., Chicago.......................
                                                          392,040     Owned
  2500 S. Paulina St., Chicago.......................
                                                          168,255     Owned
  2425 S. Wood St., Chicago..........................
                                                          103,226     Owned
  2451 S. Wood St., Chicago..........................
                                                          178,596     Owned
  350 N. Artesian Ave., Chicago......................
                                                          348,480     Owned
  1509 W. Cortland St., Chicago......................
                                                          162,540     Owned
  1831 N. Elston Ave., Chicago.......................
                                                           35,695     Owned
</Table>

                                        14
<PAGE>

<Table>
<Caption>
                                                       APPROXIMATE   LEASED/
                      LOCATION                         SQUARE FEET    OWNED
                      --------                         -----------   -------
<S>                                                    <C>           <C>
  26th and Paulina Streets, Chicago..................
                                                          323,848     Owned
  9331 S. Ewing Ave., Chicago........................
                                                          293,087     Owned
  3200 E. 96th St., Chicago..........................
                                                          364,969     Owned
  12701 S. Doty Ave., Chicago........................
                                                          784,080    Leased
  3151 S. California Ave., Chicago...................
                                                          513,500    Leased
  320 Railroad St., Joliet...........................
                                                           43,760    Leased
  1000 N. Washington, Kankakee.......................
                                                          217,800     Owned
  564 N. Entrance Ave., Kankakee.....................
                                                          206,910     Owned

Indiana
  3601 Canal St., East Chicago.......................
                                                          588,784     Owned
  425 W. 152(nd) St., East Chicago...................
                                                        1,263,240     Owned

Mississippi
  81 Morris Rd., Elliot..............................
                                                          604,837     Owned
  104 Port Rd., Fulton...............................
                                                          609,840    Leased
  2645 S. Harbor Front Rd., Greenville...............
                                                          532,437    Leased
  405 8(th) St., Greenwood...........................
                                                          194,289    Leased
  120-121 Apache Dr., Jackson........................
                                                           74,052     Owned
  111 West North St., Kosciusko......................
                                                          235,200     Owned
  304 West Bankhead St., New Albany..................
                                                            8,000    Leased
  2245 State Hwy 178, Sherman........................
                                                        2,336,868     Owned
  2337 South Veterans Blvd., Tupelo..................
                                                          506,922     Owned
  1510 West Churchill Rd., West Point................
                                                        1,356,148     Owned

New Jersey
  Foot of Hawkins St., Newark........................
                                                          382,846     Owned
  252-254 Doremus Ave., Newark.......................
                                                          384,000     Owned
  Port of Newark, Newark.............................
                                                          839,414    Leased
  303 Doremus Ave., Newark...........................
                                                          270,100    Leased
  72-78 Roanoke Ave., Newark.........................
                                                          358,684     Owned

Ohio
  4431 W. 130th St., Cleveland.......................
                                                        2,178,000    Leased
  Rte. 281 East, Defiance............................
                                                        3,267,000     Owned
  2535 Hill Ave., Toledo.............................
                                                          122,000     Owned

Pennsylvania
  2045 Lincoln Blvd., Elizabeth......................
                                                          423,054     Owned
  77 E. Railroad St., Monongahela....................
                                                          174,240     Owned

Tennessee
  540 Weakley St., Memphis...........................
                                                        1,298,611     Owned
</Table>

                                        15
<PAGE>

<Table>
<Caption>
                                                       APPROXIMATE   LEASED/
                      LOCATION                         SQUARE FEET    OWNED
                      --------                         -----------   -------
<S>                                                    <C>           <C>
Texas
  90 Hirsch Rd., Houston.............................
                                                          378,972     Owned
  15-21 Japhet, Houston..............................
                                                        1,960,200     Owned
  1102 Navigation Blvd., Freeport....................
                                                          352,400    Leased

Utah
  3260 W. 500 South St., Salt Lake City..............
                                                          435,600     Owned
</Table>

     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
Department of Environmental Protection ("CTDEP") filed suit against Joseph A.
Schiavone Corp., Schiavone, and MTLM-Connecticut in the Superior Court of the
State of Connecticut - Judicial District of Hartford. The suit alleges, among
other things, that the North Haven Facility discharged and continues to
discharge contaminants, including oily material, into the environment and has
failed to comply with the terms of certain permits and other filing
requirements. The suit seeks injunctions to restrict us from maintaining
discharges and to require us to remediate the facility. The suit also seeks
civil penalties from all of the defendants in accordance with Connecticut
environmental statutes. At this stage, we are not able to predict our potential
liability in connection with this action or any required investigation and/or
remediation. We believe that we have meritorious defenses to certain of the
claims asserted 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.

     In a letter dated July 13, 2005, we received notification from Schiavone of
his demand seeking indemnification (including the advance of all costs, charges
and expenses incurred by Schiavone in connection with his defense) from us to
those claims made against Schiavone in the action brought by CTDEP. Schiavone's
demand refers to his employment agreement and to the certificate of
incorporation of MTLM-Connecticut, which provide for indemnification against
claims by reason of his being or having been a director, officer, employee, or
agent of MTLM-Connecticut, or serving or having served at the request of MTLM-
Connecticut as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise to the fullest extent
permitted by applicable law.

                                        16
<PAGE>

     We have engaged in settlement discussions with Joseph A. Schiavone Corp.,
Schiavone and CTDEP 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 implement a CTDEP approved
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 solely of 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
and $0.1 million in fiscal 2006. These expenses are included in general and
administrative expenses on our consolidated statements of operations.

Metal Management, Inc. and Metal Management Midwest, Inc. v. Cozzi, et al.
     On July 15, 2005, we and our subsidiary Metal Management Midwest, Inc.
("MTLM-Midwest") filed a complaint (the "Complaint") against former officers and
directors, Albert A. Cozzi, Frank J. Cozzi, and Gregory P. Cozzi (collectively,
the "Defendants") in the Circuit Court of Cook County Illinois, County
Department, Chancery Division. The Complaint seeks damages from Frank J. Cozzi
and Gregory P. Cozzi for their actions in designing, implementing, and
maintaining cash payment practices in MTLM-Midwest's accounts payable that
violated our company policy and potentially federal law. The Complaint also
alleges that the Defendants breached the non-competition and non-solicitation
provisions of their respective separation and release agreements by seeking to
engage in business activities and seeking to solicit suppliers, customers and
service providers in competition with our business. The Complaint sought, among
other things, monetary compensation for our actual losses and damages, and an
injunction restraining and enjoining the Defendants from breaching their
respective separation and release agreements. On October 21, 2005, Defendants
moved to dismiss the Complaint or in the alternative to compel arbitration and
stay the judicial proceedings. Defendants also filed a counterclaim seeking
recovery of unpaid employee severance payments of approximately $1.2 million. On
March 8, 2006, Judge Mary Anne Mason of the Circuit Court of Cook County granted
the motion to compel arbitration and dismissed the lawsuit by virtue of an
arbitration provision contained in the separation and release agreements. The
parties now have filed for arbitration of the dispute before the American
Arbitration Association.

                                        17
<PAGE>

ENVIRONMENTAL AND LABOR MATTERS
     On April 29, 1998, 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 prior owner 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 the prior owner will have sufficient resources
to fund any indemnifiable claims to which we may be entitled.

     On September 22, 2005 and September 23, 2005, CTDEP's Bureau of Water
Management and Bureau of Waste Management each issued a Notice of Violation
("NOV") to our subsidiary, Metal Management Aerospace, Inc. ("MTLM-Aerospace"),
for alleged violations at MTLM-Aerospace's facility, including, among other
things (1) operation of a solid waste facility without the approval of CTDEP;
(2) failure to comply with certain environmental regulations regarding the
handling of used oil, the performance of certain hazardous waste determinations,
the disposal of PCBs and the discharge of oils and coolants; (3) failure to
comply with certain discharge reporting obligations; (4) creation of certain
potential environmental hazards; (5) inadequacy or improper maintenance of
certain pollution management devices, including erosion and sediment controls
and release detection for an underground diesel storage tank; (6) failure to
comply with a pollution prevention plan; and (7) failure to comply with certain
housekeeping and stormwater management requirements.

     On October 21, 2005, MTLM-Aerospace submitted substantive responses to
CTDEP regarding the NOVs. At this time, we are unable to determine
MTLM-Aerospace's potential liability in connection with these NOVs. We believe
that MTLM-Aerospace has meritorious defenses to certain of the allegations
outlined in the NOVs. Although we believe that by virtue of certain consent
orders, Connecticut Transfer Act obligations, and lease/transactional documents
executed by the lessor and former owner, certain environmental liabilities noted
in the NOVs will be the responsibility of the lessor and former owner, there can
be no assurance that the lessor and former owner will have sufficient resources
to fund any or all of such liabilities.

     On November 24, 2005, OSHA commenced an investigation into a recent
accident at our Newark facility that involved an employee fatality. A one count
citation was issued to the Newark facility, which included a $10 thousand
penalty. The citation has been accepted and the penalty was paid in May 2006.

     On December 30, 2005, MTLM-Aerospace received two citations from OSHA. The
citations resulted from inspections of MTLM-Aerospace's facility during the
third quarter of fiscal 2006. MTLM-Aerospace's contest of those citations was
settled through an Informal Settlement Agreement completed January 23, 2006. As
part of this Informal Settlement Agreement, MTLM-Aerospace paid a penalty of
approximately $25 thousand and submitted various abatement certifications in
response to certain alleged violations. Only one action item from the Informal
Settlement Agreement has yet to be completed. Specifically, MTLM-Aerospace is
undertaking the revision of its preventive maintenance and safety committee
program. MTLM-Aerospace has requested an extension until August 30, 2006 to
complete this effort. MTLM-Aerospace is waiting for OSHA's response to this
request. Since the preventative maintenance program will be completed using
existing internal resources, it is not expected that this effort will result in
significant out-of-pocket expense.

                                        18
<PAGE>

     On March 16, 2006, USEPA issued a subpoena to both MTLM-Aerospace as well
as the current landlord and former operator requesting detailed information with
reference to alleged PCB contamination at MTLM-Aerospace's facility. The
responses to the subpoena were submitted to the USEPA on May 4, 2006. At this
time, we are unable to determine our potential liability in connection with this
subpoena. We believe that we have meritorious defenses to certain of the
allegations outlined in the subpoena. Although we believe that by virtue of
certain lease/transactional documents executed by the lessor and former
operator, certain environmental liabilities noted in the USEPA's subpoena will
be the responsibility of the lessor and former operator, there can be no
assurance that the lessor and former operator will have sufficient resources to
fund any or all of such liabilities.

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

     No matters were submitted to our shareholders during the fourth quarter of
fiscal 2006.

                                        19
<PAGE>

                                    PART II

ITEM 5. MARKET FOR 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." Prior
to March 7, 2003, our common stock traded on the OTC Bulletin Board System. The
following table sets forth the reported high and low closing sales prices for
our common stock for the periods indicated.

<Table>
<Caption>
                                                       HIGH     LOW
                                                       ----     ---
<S>                                                   <C>      <C>
FISCAL YEAR ENDED MARCH 31, 2006
Fourth Quarter......................................  $32.25   $23.48
Third Quarter.......................................   25.86    22.93
Second Quarter......................................   27.62    19.64
First Quarter.......................................   25.96    16.88

FISCAL YEAR ENDED MARCH 31, 2005
Fourth Quarter......................................  $30.24   $22.94
Third Quarter.......................................   28.98    16.51
Second Quarter......................................   20.77    16.12
First Quarter.......................................   19.81    12.00
</Table>

Holders
     As of May 10, 2006, we had approximately 1,350 registered shareholders
based on our transfer agent's records. On May 10, 2006, the closing price per
share of our common stock as reported on the Nasdaq National Market System was
$34.49 per share.

Dividends
     In fiscal 2005, we initiated a quarterly dividend of $0.075 per share. In
fiscal 2006 we paid our stockholders four quarterly cash dividends of $0.075 per
share of common stock, or approximately $7.6 million in the aggregate. Our New
Credit Agreement allows us to pay dividends as long as we are in compliance with
all financial covenants and the amount of dividends paid does not exceed $50
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 2006, we sold 202,000 shares of our common stock pursuant to
exercise of warrants held by our employees. There were eleven exercise
transactions in fiscal 2006 and the average exercise price for each transaction
was $3.62 per share. We received proceeds of approximately $0.7 million from
these sales. 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 without public solicitation.

     During the fourth quarter of fiscal 2006, we sold 87,541 shares of our
common stock pursuant to exercise of Series A warrants that were issued to our
predecessor company shareholders in connection with our emergence from
bankruptcy on June 29, 2001. We received proceeds of approximately $1.9 million
from these sales and used the proceeds for general corporate purposes. The sales
are exempt from registration pursuant to Section 1145(a) of the Bankruptcy Code
(Title 11, United States Code).

                                        20
<PAGE>

Issuer Purchases of Securities
     We did not repurchase any equity securities during the fourth quarter of
fiscal 2006.

Securities Authorized for Issuance Under Existing Equity Compensation Plans
     The information required under this item is incorporated by reference from
the section entitled "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 31, 2006.

                                        21
<PAGE>

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.

<Table>
<Caption>
                                              PREDECESSOR   |                               REORGANIZED
                                                COMPANY     |                                 COMPANY
                                              --------------|--------------------------------------------------------------------
                                                 THREE      |       NINE
                                                MONTHS      |      MONTHS
(IN THOUSANDS, EXCEPT PER SHARE DATA)            ENDED      |       ENDED                    YEARS ENDED MARCH 31,
                                               JUNE 30,     |     MARCH 31,   ---------------------------------------------------
                                                 2001       |       2002        2003         2004          2005          2006
STATEMENT OF OPERATIONS DATA:                    ----       |       ----        ----         ----          ----          ----
<S>                                           <C>           |     <C>         <C>         <C>           <C>           <C>
Net sales                                     $  166,268    |     $464,795    $ 770,009   $ 1,083,413   $ 1,701,958   $ 1,589,126
Cost of goods sold (excluding                               |
  depreciation)                                  149,216    |      409,180      664,868       923,000     1,460,614     1,400,285
General and administrative expense(a)             11,686    |       34,237       50,544        60,963        79,816        81,576
Depreciation and amortization                      4,718    |       13,673       17,533        18,193        18,634        19,192
Asset impairment and severance                              |
  charges(b)                                       1,941    |        3,944         (695)        6,198             -         1,306
Operating income (loss)                           (1,293)   |        3,761       37,759        75,059       142,894        86,767
Interest expense                                  (5,169)   |       (9,450)     (11,129)       (6,925)       (3,298)       (1,578)
Reorganization items(c)                         (135,364)   |          457            -             -             -             -
Net income (loss)                             $  128,599    |     $ (6,083)   $  20,501   $    51,389   $    92,250   $    60,264
                                                            |
Net income (loss) per share:                                |
  Basic                                       $     2.09    |     $  (0.30)   $    1.01   $      2.42   $      3.96   $      2.45
  Diluted                                     $     2.09    |     $  (0.30)   $    0.99   $      2.27   $      3.74   $      2.35
                                                            |
Cash dividends declared per share             $     0.00    |     $   0.00    $    0.00   $      0.00   $      0.15   $      0.30
                                                            |
Weighted average shares outstanding               61,731    |       20,239       20,323        21,243        23,279        24,579
Weighted average diluted shares                             |
  outstanding                                     61,731    |       20,239       20,741        22,653        24,659        25,670
                                                            |
SALES VOLUMES:                                              |
Ferrous (tons)                                       974    |        2,964        4,137         4,403         4,668         4,447
Non-ferrous (lbs.)                               123,308    |      324,328      442,234       424,494       499,276       486,528
Brokerage - ferrous (tons)                           125    |          225          454           304           219           263
Brokerage - non-ferrous (lbs.)                     5,216    |       11,867       10,688         4,506         3,210         6,188
</Table>

                                        22
<PAGE>

<Table>
<Caption>
                                                                    REORGANIZED COMPANY
                                                    ----------------------------------------------------
                                                                         MARCH 31,
                                                    ----------------------------------------------------
                                                      2002       2003       2004       2005       2006
(in thousands)                                        ----       ----       ----       ----       ----
<S>                                                 <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and short-term investments                     $    838   $    869   $  1,155   $ 52,821   $ 73,752
Working capital                                       52,474     (9,691)    80,740    153,198    190,946
Total assets                                         257,108    248,651    406,416    478,782    555,317
Total debt (including current maturities)            133,960     89,610     44,297      2,531      3,248
Common stockholders' equity                           59,487     78,282    202,839    312,616    383,889
</Table>

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

  (a) Fiscal 2004, 2005 and 2006 includes stock-based compensation expense of
      $1.0 million, $4.8 million and $7.2 million, respectively.

  (b) Asset impairment and severance charges consist of the following items (in
      thousands):

<Table>
<Caption>
                                                      PREDECESSOR  |                  REORGANIZED
                                                        COMPANY    |                    COMPANY
                                                      -------------|---------------------------------------------
                                                         THREE     |     NINE
                                                        MONTHS     |    MONTHS
                                                         ENDED     |     ENDED         YEARS ENDED MARCH 31,
                                                       JUNE 30,    |   MARCH 31,   ------------------------------
                                                         2001      |     2002      2003     2004    2005    2006
                                                         ----      |     ----      ----     ----    ----    ----
<S>                                                   <C>          |   <C>         <C>     <C>      <C>    <C>
Impairment of long-lived assets                         $1,941     |    $3,944     $(695)  $    0    $0    $1,306
Severance, facility closure charges and other                0     |         0         0    6,198     0         0
                                                        ------     |    ------     -----   ------    --    ------
                                                        $1,941     |    $3,944     $(695)  $6,198    $0    $1,306
                                                        ======     |    ======     =====   ======    ==    ======
</Table>

  (c) The three months ended June 30, 2001 includes $145.7 million of income
      related to the discharge of indebtedness in accordance with our emergence
      from bankruptcy.

                                        23
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 50 facilities in 16 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.

     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 scrap 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
scrap 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. Revenues from our demolition, stevedoring and bus dismantling
businesses are deminimus when compared to revenues generated by scrap metal
recycling.

RECENT EVENTS
     On February 27, 2006, we acquired the assets of Morris Recycling, Inc.
("Morris") for a purchase price of approximately $25.8 million, which included
transaction costs and a working capital adjustment that was paid in April 2006.
Morris is a full service scrap metal recycler serving Mississippi and portions
of Arkansas, Tennessee and Alabama. Through its 10 operating facilities,
including a shredding plant adjacent to the Mississippi River, Morris handles
approximately 240,000 tons of ferrous metals and approximately 32 million pounds
of non-ferrous metals annually.

     On April 1, 2006, Norman R. Bobins was appointed to our Board of Directors.
Mr. Bobins is the President and Chief Executive Officer of LaSalle Bank
Corporation. Mr. Bobins filled a vacancy on our Board created by the retirement
of Kevin P. McGuinness. Mr. McGuinness serves as Director Emeritus.

     On April 7, 2006, we completed a land purchase in Newark, New Jersey, next
to our Hawkins Street facility, on which a mega-shredder will be installed. The
total cost of the land purchase was $10.0 million. We estimate the costs to
acquire and install equipment related to the mega-shedder to be in the range of
$17 million to $19 million in addition to the cost of the land. We expect the
mega-shredder will be operational in April 2007.

     On April 19, 2006, we purchased a stevedoring crane for our facility at
Port Newark terminal. The stevedoring crane will be utilized in our material
handling activities. The cost of the stevedoring crane was approximately $6.0
million.

     On April 28, 2006, we and our joint venture partner in Southern Recycling,
LLC ("Southern") sold our membership interests to European Metal Recycling Ltd.
for $161.4 million in cash. Based upon our ownership interest, we received
approximately $46 million in cash. We expect to record a pre-tax gain from the
sale of our ownership interest in the range of $25 million to $27 million in our
first quarter of fiscal 2007.

     On May 9, 2006, we entered into a $300 million secured five-year revolving
credit and letter of credit facility, with a maturity date of May 1, 2011 (the
"New Credit Agreement"). The New Credit Agreement replaces our existing $200
million secured revolving and letter of credit facility, as amended, which had a
maturity date of June 28, 2008 (the "Old Credit Agreement").

                                        24
<PAGE>

     On May 16, 2006, we acquired substantially all of the assets of a scrap
metal recycling yard located in East Chicago, Indiana from Omnisource
Corporation. This yard handles approximately 430,000 tons of ferrous metals and
approximately 10 million pounds of non-ferrous metals annually. The acquisition
was paid for using cash balances.

RESULTS OF OPERATIONS
     Our operating results for fiscal 2006, fiscal 2005, and fiscal 2004 were
strong which is attributable to favorable industry conditions, a careful focus
on internal operations, and financial discipline. In each of the last three
fiscal years, we have generated net income in excess of $51 million and net
sales exceeding $1 billion. In fiscal 2005, we generated sales and net income of
$1.7 billion and $92.3 million, respectively, which are record results for Metal
Management. In fiscal 2006, our net sales and net income were strong but were
lower than the record results in fiscal 2005. In fiscal 2006, we generated net
sales and net income of $1.6 billion and $60.3 million, respectively.

     Over the last three fiscal years, we have experienced strong industry
conditions but also encountered extreme volatility in ferrous scrap prices. Our
results during the last three fiscal years have generally received support from
strong markets in the U.S. for steel and, from time to time, we have experienced
periodic strength and at other times, some relative weakness from export
markets. Our average ferrous selling price per ton for fiscal 2006, fiscal 2005,
and fiscal 2004 were $229, $261, and $174, respectively. Changes in ferrous
scrap prices can cause collection rates for ferrous scrap to increase (when
prices are higher) or decrease (when prices are lower) and these variations have
had a significant affect on sales volumes we have handled through our scrap
yards. Changing volumes is also a key driver of our results along with changing
prices.

     We also believe our favorable results over the last three fiscal years are
a function of demand from industrializing countries such as China, Turkey and
India who have become significant consumers of industrial metals and especially
non-ferrous metals. Our non-ferrous sales have increased to represent as much as
31% of our sales in fiscal 2006 compared to 24% in each of fiscal 2005 and
fiscal 2004, and much of that demand is from China. Many analysts and media
reporters believe that Chinese demand for non-ferrous metals is in large part
the reason for the extremely high prices of non-ferrous metals when compared to
historical averages. Some sources have attributed the high non-ferrous metal
prices to possible speculation by institutional investors. On May 11, 2006, the
spot copper price on COMEX was $4.03 per pound and the spot aluminum price on
the London Metals Exchange ("LME") was $1.49 per pound, which are very high
prices based on historical prices for these commodities.

                                        25
<PAGE>

     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)

<Table>
<Caption>
                                                       YEARS ENDED MARCH 31,
                                    ------------------------------------------------------------
                                       2006        %        2005        %        2004        %
                                       ----        -        ----        -        ----        -
<S>                                 <C>          <C>     <C>          <C>     <C>          <C>
SALES BY COMMODITY:
  Ferrous metals                    $1,019,856    64.2%  $1,218,079    71.6%  $  766,649    70.8%
  Non-ferrous metals                   484,748    30.5      406,864    23.9      254,737    23.5
  Brokerage - ferrous                   55,953     3.5       54,080     3.2       42,548     3.9
  Brokerage - non-ferrous                6,507     0.4        3,350     0.2        2,017     0.2
  Other                                 22,062     1.4       19,585     1.1       17,462     1.6
                                    ----------   -----   ----------   -----   ----------   -----
Net sales                            1,589,126   100.0%   1,701,958   100.0%   1,083,413   100.0%

Cost of sales (excluding
  depreciation)                      1,400,285    88.1    1,460,614    85.8      923,000    85.2
General and administrative expense      81,576     5.1       79,816     4.7       60,963     5.6
Depreciation and amortization           19,192     1.2       18,634     1.1       18,193     1.7
Asset impairment and severance           1,306     0.1            0     0.0        6,198     0.6
Income from joint ventures               9,716     0.6       14,200     0.8        8,300     0.8
Interest expense                        (1,578)    0.1       (3,298)    0.2       (6,925)    0.7
Interest and other income, net           1,891     0.1          257     0.0         (902)    0.1
Loss on debt extinguishment                  0     0.0       (1,653)    0.1         (363)    0.0
Provision for income taxes              36,532     2.3       60,150     3.5       23,780     2.2
Net income                          $   60,264     3.8%  $   92,250     5.4%  $   51,389     4.7%
</Table>



<Table>
<Caption>
                                       2006                 2005                 2004
SALES VOLUME BY COMMODITY              ----                 ----                 ----
(IN THOUSANDS):
<S>                                 <C>          <C>     <C>          <C>     <C>          <C>
Ferrous metals (tons)                    4,447                4,668                4,403
Non-ferrous metals (lbs.)              486,528              499,276              424,494
Brokerage - ferrous (tons)                 263                  219                  304
Brokerage - non-ferrous (lbs.)           6,188                3,210                4,506
</Table>

FISCAL 2006 COMPARED TO FISCAL 2005

NET SALES
     Consolidated net sales decreased by $112.8 million (6.6%) to $1.6 billion
in fiscal 2006 compared to consolidated net sales of $1.7 billion in fiscal
2005. The decrease in consolidated net sales was primarily due to lower average
selling prices for ferrous products and decreases in metals processed and sold.

                                        26
<PAGE>

Ferrous Sales
     Ferrous sales decreased by $198.2 million (16.3%) to $1.0 billion in fiscal
2006 compared to ferrous sales of $1.2 billion in fiscal 2005. The decrease was
attributable to lower average selling prices and lower sales volumes that
declined by 221,000 tons (4.7%). The average selling price for ferrous products
was approximately $229 per ton in fiscal 2006 which represents a decrease of
approximately $32 per ton (12.1%) from fiscal 2005. Fiscal 2005 demonstrated
very high ferrous scrap prices in our second and third fiscal quarters. Ferrous
prices declined significantly from March 2005 through June 2005. The decrease in
selling prices for ferrous scrap is generally evident in data published by the
American Metal Market ("AMM"). According to AMM, the average price for #1 Heavy
Melting Steel Scrap - Chicago ("#1 HMS"), which is a common indicator for
ferrous scrap, was approximately $206 per ton in fiscal 2006 compared to
approximately $214 per ton in fiscal 2005. As evidenced by the table below, #1
HMS average prices fell in the first and second quarters of fiscal 2006, before
recovering in the third quarter of fiscal 2006. This decline impacted our
ferrous sales during the first half of fiscal 2006.

<Table>
<Caption>
                                        FISCAL 2006   FISCAL 2005
AVERAGE PRICE FOR #1 HMS (PER TON)      -----------   -----------
<S>                                     <C>           <C>
First Quarter                              $ 174         $ 195
Second Quarter                             $ 189         $ 230
Third Quarter                              $ 231         $ 236
Fourth Quarter                             $ 232         $ 194
</Table>

     Sales volumes during fiscal 2006 decreased due to lower domestic demand for
our ferrous scrap in the first half of the fiscal year, which also led to lower
flows of scrap into our yards. In the second half of the fiscal year, domestic
demand and scrap prices rebounded resulting in higher ferrous sales in the third
and fourth quarters. 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 $77.8 million (19.1%) to $484.7 million in
fiscal 2006 compared to non-ferrous sales of $406.9 million in fiscal 2005. The
increase was due to higher average selling prices offset, in part, by lower
sales volumes. In fiscal 2006, the average selling price for non-ferrous
products increased by approximately $0.18 per pound (22.2%) to $1.00 per pound,
while non-ferrous sales volumes decreased by 12.7 million pounds (2.6%) compared
to fiscal 2005.

     Our non-ferrous operations have benefited from rising prices for copper,
aluminum and stainless steel (nickel base metal). The increase in non-ferrous
prices is evident in data published by LME and COMEX. According to COMEX data,
average prices for copper were 39% higher in fiscal 2006 compared to fiscal
2005. According to LME data, average prices for aluminum and nickel were higher
by 14% and 5%, respectively, in fiscal 2006 compared to fiscal 2005.

     Our non-ferrous sales volumes decline was attributable to lower stainless
steel sales, which decreased by approximately 24.8 million pounds (12.1%).
Demand for stainless steel was weak during fiscal 2006, especially in our third
fiscal quarter, as stainless steel mills adjusted downward their inventory
levels. Excluding our stainless steel sales volumes, sales volumes for our other
non-ferrous products increased by 12.1 million pounds (4.5%). This increase is
primarily due to strong demand from export consumers which has led us to expand
our non-ferrous product line. In addition, strong demand and favorable industry
conditions for the aerospace industry has resulted in increased sales prices and
volumes for titanium and high-temperature alloys.

     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 which is
in turn higher than prices for stainless steel. In addition, the amount of
high-temperature alloys that we sell 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.

                                        27
<PAGE>

Brokerage Sales
     Brokerage ferrous sales increased by $1.9 million (3.5%) to $56.0 million
in fiscal 2006 compared to brokerage ferrous sales of $54.1 million in fiscal
2005. The increase was due to higher brokered sales volume, partially offset by
a decrease in average selling prices. In fiscal 2006, brokered sales volumes
increased by 44,000 tons (20.0%) while average selling prices decreased by
approximately $34 per ton (13.8%) to $213 per ton compared to fiscal 2005.

     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 $3.1 million (94.2%) to $6.5
million in fiscal 2006 compared to brokerage non-ferrous sales of $3.4 million
in fiscal 2005. The increase was due to higher sales volumes, which increased by
3.0 million pounds (92.8%) compared to fiscal 2005. 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 terminal. The increase in other sales in
fiscal 2006 is a result of higher stevedoring revenue, which increased by $3.2
million compared to fiscal 2005.

COST OF SALES (EXCLUDING DEPRECIATION)
     Cost of sales decreased by $60.3 million (4.1%) to $1.4 billion in fiscal
2006 compared to cost of sales of $1.46 billion in fiscal 2005. The decrease is
primarily due to lower material costs, which declined by $74.3 million (6.3%).
The decrease in material costs was partially offset by higher freight and
processing costs. Freight costs were higher by $7.0 million (5.7%) due to
increases in freight rates resulting from higher fuel costs and a slight
increase in tons exported as well as a greater percentage of sales being made on
delivered contracts. Processing costs increased by $6.9 million (4.2%) mainly
due to higher fuel, operating supplies, waste disposal and lease expense.

     Cost of sales represented 88.1% of consolidated net sales in fiscal 2006
compared to 85.8% of consolidated net sales in fiscal 2005. The increase in cost
of sales percentage was due to processing costs that did not decline
commensurately with the decline in sales.

GENERAL AND ADMINISTRATIVE EXPENSE
     General and administrative expense was $81.6 million in fiscal 2006
compared to general and administrative expense of $79.8 million in fiscal 2005.
The increase resulted from higher compensation expense and stock-based
compensation offset in part, by lower professional fees.

     Compensation expense in fiscal 2006 increased by $2.1 million due to higher
salaries and increased headcount, offset by lower incentive compensation
expense, compared to fiscal 2005. Our incentive compensation plans are generally
measured as a function of return on net assets. We recorded $16.9 million of
expense in connection with the employee incentive compensation plans in fiscal
2006 compared to $17.6 million of expense in fiscal 2005.

     Stock-based compensation expense was $7.2 million in fiscal 2006 compared
to stock-based compensation expense of $4.8 million in fiscal 2005. The increase
was due to expense associated with restricted stock grants of approximately
220,000 shares made in fiscal 2006. The restricted stock generally vests over a
period of 2 to 4 years and is subject to forfeiture if certain employment
conditions are not satisfied.

     Professional fees were $1.4 million lower in fiscal 2006 compared to fiscal
2005. The decrease was due to $2.2 million of legal fees and related costs
incurred in fiscal 2005 resulting from the investigations performed in
connection with our voluntary disclosure to the U.S. Department of Justice
regarding cash payments made

                                        28
<PAGE>

to certain industrial account suppliers (see Part I, Item 3 of this report). In
fiscal 2006, only $0.1 million of professional fees were incurred relating to
this matter.

DEPRECIATION AND AMORTIZATION
     Depreciation and amortization expense was $19.2 million in fiscal 2006
compared to depreciation and amortization expense of $18.6 million in fiscal
2005. Depreciation expense increased as a result of higher capital expenditures
over the last two fiscal years. We expect depreciation expense to continue to
increase as we invest in our equipment and operations.

ASSET IMPAIRMENT AND SEVERANCE CHARGES
     In fiscal 2006, we completed a strategy designed to improve the
profitability of our Chicago-area scrap yards. As a part of that strategy, a
decision was made to consolidate processing activities at the Chicago-area scrap
yards which resulted in the idling of a shredder and a baler. The baler was sold
to a third party at approximately its net book value. The shredder is
categorized as held and used and its carrying value was written down to its
estimated fair value resulting in a $1.0 million asset impairment charge.

     We evaluated the recoverability of the customer list intangible asset and
determined that the retention rate of the customers was lower than anticipated
in the original intangible asset appraisal. As a result, we recorded an asset
impairment charge of $0.3 million related to the customer list intangible asset.

INCOME FROM JOINT VENTURES
     Income from joint ventures was $9.7 million in fiscal 2006 compared to
income from joint ventures of $14.2 million in fiscal 2005. Income recognized
from joint ventures primarily represented our 28.5% share of income from
Southern. The decline in income from joint ventures is primarily attributable to
business interruptions at Southern as a result of Hurricane Katrina in August
2005, relatively weaker demand and prices for ferrous scrap metals in fiscal
2006 and losses incurred by our Metal Management Nashville, LLC ("Nashville")
joint venture.

     Income from Southern in fiscal 2006 includes gains from insurance
settlements related to damages from Hurricane Katrina. Our share of earnings
from the insurance gains was $1.8 million. As stated above, we sold our
membership interest in Southern in April 2006. In fiscal 2007, we will recognize
a pre-tax gain on the sale of our membership interest in Southern in the range
of $25 million to $27 million.

     Losses incurred at our Nashville joint venture are primarily associated
with start-up expenses that continue to be incurred during the installation of a
mega-shredder and a full-service scrap yard. We expect the mega-shredder to be
operational in Nashville in June 2006. The decline in income from Southern and
Nashville was mitigated, to some degree, by income from our joint venture in
Albany, New York, which commenced operations in March 2005 and is performing
well.

INTEREST EXPENSE
     Our interest expense in fiscal 2006 primarily consisted of amortization of
deferred financing costs, unused line fees under our Old Credit Agreement and
interest on mortgage loans. Interest expense was $1.6 million in fiscal 2006
compared to interest expense of $3.3 million in fiscal 2005. The decrease was a
result of less debt. Average debt was approximately $2.5 million in fiscal 2006
compared to average debt of approximately $37.1 million in fiscal 2005.

INTEREST AND OTHER INCOME
     Interest and other income was $1.9 million in fiscal 2006 compared to $0.3
million in fiscal 2005. The increase was due to dividend and interest income
earned on our cash and short-term investments. In fiscal 2005, we did not have
any short-term investments. In addition, we received insurance reimbursements of
$0.7 million in fiscal 2006.

                                        29
<PAGE>

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 Old Credit Agreement. This amount represented a write-off of a portion
of the unamortized deferred financing costs associated with the previous credit
agreement.

INCOME TAXES
     In fiscal 2006, we recognized income tax expense of $36.5 million resulting
in an effective tax rate of 37.7%. In fiscal 2005, our income tax expense was
$60.2 million resulting in an effective tax rate of 39.5%. The effective tax
rate differs from the federal statutory rate mainly due to state taxes and
permanent tax items. The decrease in the effective tax rate was due to higher
benefits from the extra-territorial income ("ETI") deduction and the new
domestic manufacturing deduction.

     On October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was
signed into law. The provision of the AJCA that mainly impacted us was the
phase-out of the ETI deduction, which will be completely eliminated by December
31, 2006. The ETI deduction was replaced by a domestic manufacturing deduction,
which reduced our effective tax rate by 0.5% in fiscal 2006. However, we expect
the benefits of the domestic manufacturing deduction to be less than the
benefits provided by the ETI deduction, which will negatively impact our
effective tax rate in future periods.

     In November 2005, the Internal Revenue Service ("IRS") commenced an
examination of our federal income tax return for fiscal 2004. In March 2006, the
IRS completed its exam and did not make any changes to our fiscal 2004 tax
return. As a result, we reassessed our liabilities for tax contingencies to
reflect the closure of the IRS audit for fiscal 2004 and recorded a $0.3 million
reduction in these liabilities during the fourth quarter of fiscal 2006.

NET INCOME
     Net income was $60.3 million in fiscal 2006 compared to net income of $92.3
million in fiscal 2005. Net income decreased due to lower material margins
realized on ferrous products, lesser unit shipments, lower income from joint
ventures, increased general and administrative expense, and asset impairment
charges recorded in fiscal 2006.

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 represented an increase of approximately $87
per ton (49.9%) from fiscal 2004. The increase in selling prices for ferrous
scrap was evident in the average price for #1 HMS, which was approximately $214
per ton in fiscal 2005 compared to approximately $143 per ton in fiscal 2004.

     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.

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

                                        30
<PAGE>

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.

     The increase in non-ferrous prices was evident in data published by 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 improvement in the U.S. economy in fiscal 2005, coupled with
improvements in economies in other countries, led to increased supply and demand
for non-ferrous products, mainly in copper, aluminum and stainless steel.

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.

     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 higher average selling prices, partially
offset by a decrease in sales volumes.

Other Sales
     The increase in other sales in fiscal 2005 was a result of higher
stevedoring revenue, which increased by $2.9 million compared to fiscal 2004.

COST OF SALES (EXCLUDING DEPRECIATION)
     Cost of sales increased by $537.6 million (58.2%) to $1.46 billion in
fiscal 2005 compared to cost of sales of $923.0 million in fiscal 2004. The
increase was primarily due to higher material costs, which increased by $479.5
million. In addition, freight increased by $33.2 million and processing costs
increased by $24.8 million.

     Freight costs were higher due to higher freight rates and a greater
percentage of sales accomplished on delivered terms (for which we pay freight).
Processing costs were higher due to increases in labor costs, repairs and
maintenance and fuel and operating supplies. The increase in labor costs was due
to additional headcount and overtime resulting from the increased demand for our
products. The increase in other processing costs was due to additional tons of
scrap metal processed.

     Cost of sales represented approximately 85.8% of consolidated net sales in
fiscal 2005 compared to 85.1% of consolidated net sales in fiscal 2004. The
slight increase in cost of sales percentage was due to higher material costs.

GENERAL AND ADMINISTRATIVE EXPENSE
     General and administrative expense was $79.8 million in fiscal 2005
compared to general and administrative expense 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. 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.

                                        31
<PAGE>

     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 incurred a full year of expense in fiscal 2005.

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 in fiscal 2005 due
to our decision to acquire new material handling equipment financed through
operating leases which contained attractive terms compared to purchasing the
equipment.

ASSET IMPAIRMENT AND SEVERANCE CHARGES
     In fiscal 2004, we incurred $6.2 million of severance charges related to a
management realignment. This management realignment resulted in the recognition
of $6.2 million of expenses primarily in connection with aggregate severance
payments, benefits, and expense associated with the acceleration of vesting of
restricted stock.

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 in fiscal 2005 primarily represented 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 Old 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 our Old Credit Agreement. This amount represented 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 represented a
premium paid to accomplish the repurchase of the junior secured notes.

                                        32
<PAGE>

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 was due to certain
elements of executive compensation that were non-deductible for tax purposes.

     Our cash taxes paid in fiscal 2005 were 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
in fiscal 2005, we fully utilized our federal NOL carryforwards.

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, increased unit shipments,
higher income from joint ventures, and lower interest expense.

LIQUIDITY AND CAPITAL RESOURCES
     Our financial condition remained strong in fiscal 2006. We had no
borrowings outstanding on our Old Credit Agreement and had cash, cash
equivalents and short-term investments of $73.8 million at March 31, 2006. Our
primary source of working capital is our cash and short-term investments,
collections from customers and financing available under our New Credit
Agreement.

Cash Flows
     Net cash provided by operating activities was $72.6 million in fiscal 2006
compared to $122.0 million in fiscal 2005. Cash from operating activities
decreased due to lower net income ($32.0 million) and a decrease in the impact
of non-cash items ($24.7 million) offset, in part, by a smaller increase in
working capital in fiscal 2006. Working capital reduced cash flows from
operating activities by $16.4 million in fiscal 2006 compared to a reduction of
$23.6 million to cash flows from operating activities in fiscal 2005. The
working capital improvement was primarily in inventories which were reduced by
$1.0 million in fiscal 2006 compared to an increase of $16.2 million in fiscal
2005.

     Net cash used in investing activities was $88.0 million in fiscal 2006
compared to $29.4 million in fiscal 2005. The increase was due to $24.1 million
of cash used to acquire Morris, higher capital expenditures and the purchase of
short-term investments. Capital expenditures increased by $12.6 million in
fiscal 2006 as a result of investments into our operations and for new
equipment. We plan to continue investing in our operations to improve
operational efficiency and create competitive advantages. In addition, in fiscal
2006, we began to invest our excess cash in auction-rate securities, which
resulted in a net investment of $36.0 million.

     Net cash provided by financing activities was $0.3 million in fiscal 2006
compared to net cash used in financing activities of $40.9 million in fiscal
2005. In fiscal 2005, cash flows generated from operations were primarily used
to repay debt. In fiscal 2006, our primary financing activities related to our
stockholders' equity. We received $8.2 million of cash from the exercise of
stock options and warrants and paid cash dividends of $7.6 million.

Indebtedness
     Our New Credit Agreement, due May 1, 2011, replaced our previous $200
million secured revolving and letter of credit facility, as amended, which had a
maturity date of June 28, 2008 (the "Old Credit Agreement"). In consideration
for the New Credit Agreement, we incurred fees and expenses of approximately
$0.6 million. Pursuant to the New Credit Agreement, we will pay a fee on the
undrawn portion of the facility that is determined by our leverage ratio
(currently that cost is .175% per annum). Significant covenants under the New
Credit Agreement include the satisfaction of a leverage ratio and interest
coverage ratio and a limit on capital expenditures of $75 million in fiscal 2007
and $65 million in each of the following four fiscal years.

                                        33
<PAGE>

     The New Credit Agreement provides for interest rates based on variable
rates tied to the prime rate plus or minus a margin or the London Interbank
Offered Rate ("LIBOR") plus a margin. The margin is based on our leverage ratio
(as defined in the New Credit Agreement) as determined for the trailing four
fiscal quarters. Based on the current leverage ratio, the margins are either
LIBOR plus .875% or prime rate minus .25%.

     Borrowings under the Old Credit Agreement were 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. Pursuant to the Old
Credit Agreement, we paid a fee on the undrawn portion of the facility that was
determined by the leverage ratio. As of March 31, 2006, that fee was .25% per
annum. The New Credit Agreement has no borrowing base limitations. As of March
31, 2006, we were in compliance with all financial covenants contained in the
Old Credit Agreement. As of May 10, 2006, we had no outstanding borrowings under
the New Credit Agreement.

Future Capital Requirements
     We expect to fund our working capital needs, dividend payments and capital
expenditures over the next twelve months with cash generated from operations,
supplemented by financing available under the New 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.

     Capital expenditures were $28.2 million in fiscal 2006. We expect that our
total capital expenditures in fiscal 2007 will be in the range of $65 million to
$75 million. Significant capital expenditures include $9.5 million of cash paid
on April 7, 2006 for the purchase of land upon which a mega-shredder will be
installed. The total cost of the mega-shredder, including land, will be
approximately $27 million to $29 million. We also purchased a stevedoring crane
for $6.0 million in April 2006.

     In addition, due to favorable financing terms made available by equipment
manufacturing vendors, we have entered into operating leases for new equipment.
These operating leases are attractive to us since the implied interest rates are
lower than interest rates under our New Credit Agreement. We expect to
selectively use operating leases for new material handling equipment or trucks
required by our operations.

     In fiscal 2006, we received $7.4 million from the exercise of Series A
Warrants. As of March 31, 2006, we had 291,696 Series A Warrants outstanding.
The exercise price of the Series A Warrants is $21.19 per warrant and each
warrant represents the right to purchase two shares of common stock. The Series
A Warrants expire on June 29, 2006. If all the Series A Warrants are exercised,
we would receive cash proceeds of approximately $6.2 million by June 29, 2006.
Any Series A Warrant that is not exercised by June 29, 2006 will be cancelled
and will expire worthless to the holder of such Series A Warrant.

     We paid $7.6 million in cash dividends during fiscal 2006. 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, working capital requirements and dividend payments for the
next twelve months and any acquisitions we may choose to pursue, 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, results 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.

                                        34
<PAGE>

     The following table sets forth our known contractual obligations as of
March 31, 2006, and the effect such obligations are expected to have on our
liquidity and cash flow in future periods (in thousands):

<Table>
<Caption>
                                            LESS THAN     ONE TO       THREE TO
                                  TOTAL     ONE YEAR    THREE YEARS   FIVE YEARS   THEREAFTER
                                  -----     ---------   -----------   ----------   ----------
<S>                              <C>        <C>         <C>           <C>          <C>
Long-term debt and capital
  leases                         $  3,566   $   1,297   $     2,053   $      216   $        0
Operating leases                   57,639      12,395        19,361       10,100       15,783
Other contractual obligations       7,797       7,397           400            0            0
                                 --------   ---------   -----------   ----------   ----------
Total contractual cash
  obligations                    $ 69,002   $  21,089   $    21,814   $   10,316   $   15,783
                                 ========   =========   ===========   ==========   ==========
</Table>

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 2007. Our minimum required
pension contributions for fiscal 2007 will be approximately $1.1 million.

     On April 7, 2006, we completed a land purchase in Newark, New Jersey for
$10.0 million. As of March 31, 2006, only a $0.5 million deposit had been made
towards the land purchase.

     We also enter into letters of credit in the ordinary course of operating
and financing activities. As of March 31, 2006, we had outstanding letters of
credit of $6.0 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 tolling, stevedoring and dismantling
are insignificant when compared to revenues from scrap metals sales.

     We recognize revenue in accordance with SEC Staff Accounting Bulletin
("SAB") No. 104, "Revenue Recognition." Revenues from processed ferrous and
non-ferrous scrap metal sales are recognized when title and risk of loss have
passed 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.

Short-term Investments
     All investments with original maturities of greater than 90 days are
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." We determine the appropriate classification at the time of
purchase. At

                                        35
<PAGE>

March 31, 2006, we had short-term investments of approximately $36.0 million,
which mainly consisted of investments in auction rate securities which are
classified as available-for-sale. Auction rate securities consist of tax-free
bonds issued by municipalities which mainly carry AAA ratings. Investments in
auction rate securities are recorded at cost, which approximates fair value due
to their variable interest rates which reset every 7 to 30 days. As a result,
these securities are classified as current assets. Despite the long-term nature
of their stated contractual maturities, there is a readily liquid market for
these securities. As a result, we had no cumulative gross unrealized holding
gains (losses) or gross realized gains (losses) from our short-term investments.
All income generated from these investments was recorded as other income.

Accounts Receivable and Allowance for Uncollectible Accounts Receivable
     Accounts receivable consist primarily of amounts due from customers from
product and brokered sales. The allowance for uncollectible accounts receivable
totaled $1.8 million and $2.7 million at March 31, 2006 and 2005, 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," in Part I, Item 1A of this report, 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 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. Each year, we test for impairment of goodwill using a two-step
approach. In the first step, we estimate the fair value of our reporting units
using the present value of future cash flows. If the carrying amount exceeds the
fair value, the second step is performed to measure the amount the impairment
loss. The second step of the goodwill impairment test involves comparing the
implied fair value of the reporting unit's goodwill with the carrying amount of
goodwill. In the second step, the implied value of the goodwill is estimated as
the fair value of the reporting unit used in the first step reduced by the fair
values of other tangible and intangible assets of the reporting unit. An
impairment loss is recognized in an amount equal to the excess of the carrying
value over the fair value of goodwill, not exceeding the carrying amount of the
goodwill. At March 31, 2006, we determined that no impairment existed as a
result of our annual impairment test.

Long-lived Assets
     We assess the impairment of long-lived assets (including intangible 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. As
discussed above, in fiscal 2006, we recognized asset impairment charges of $1.3
million.

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).
                                        36
<PAGE>

Pension Plans
     We sponsor three defined benefit pension plans for employees at certain of
our subsidiaries. Pension benefits are based on formulas that reflect either the
employees' years of service and compensation or on years of service at fixed
benefit rates. We recognized pension expense of $0.5 million and $0.4 million in
fiscal 2006 and 2005, respectively. We currently estimate that pension expense
will be $0.3 million in fiscal 2007. 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 5.75% to compute pension expense in fiscal 2006.
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
5.75% to 5.50%, while holding all other assumptions constant, would have
resulted in an increase in our pension expense of approximately $37 thousand in
fiscal 2006. We have reduced our discount rate to 5.50% at March 31, 2006 to
reflect market interest rate reductions.

     We assumed that long-term returns on pension assets were 8.00% during
fiscal 2006. 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 $22 thousand in fiscal 2006.

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.

     As of March 31, 2006, we have a valuation allowance of $1.7 million
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. 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
                                        37
<PAGE>

inventory costs incurred during fiscal years beginning after June 15, 2005. The
adoption of this statement is not expected to materially 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 APB Opinion No. 25, "Accounting for Stock Issued
to Employees." 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. We
adopted 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"). At March 31, 2006, the aggregate value
of nonvested awards, as determined using a Black-Scholes option valuation model,
was $0.3 million. This amount will be recognized over the remaining vesting
period of the awards.

     In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47,
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
FASB Statement No. 143." FIN 47 clarifies that conditional asset retirement
obligations meet the definition of liabilities and should be recognized when
incurred if their fair values can be reasonably estimated. We implemented FIN 47
at March 31, 2006. The adoption of this interpretation was not material to our
consolidated financial statements.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3." This
statement provides guidance on the accounting for and reporting of accounting
changes and error corrections. It requires, unless impracticable, retrospective
application for reporting a change in accounting principle, unless the newly
adopted accounting principle specifies otherwise, and reporting of a correction
of an error. The provisions of this statement are effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The adoption of this statement is not expected to materially impact
our consolidated financial statements.

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 demand from export markets can be volatile" in
Part I, Item 1A of this report. We attempt to mitigate this risk by seeking to
turn our inventories quickly instead of holding inventories in speculation of
higher commodity prices.

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 any borrowings we make under our New Credit Agreement. At
March 31, 2006, we had no outstanding borrowing under our Old Credit Agreement,
but this may not always be the case. Borrowings on our New Credit Agreement bear
interest at either the prime rate of interest plus or minus 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.

     At March 31, 2006, we had short-term investments of $36.0 million, which
are mainly comprised of auction rate securities. Due to the short term nature of
these investments, we believe we mitigate our exposure to interest rate risk.

                                        38
<PAGE>

Foreign Currency Risk
     Although international sales accounted for 30% of our consolidated net
sales in fiscal 2006, 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").

     Based upon this evaluation, our CEO and our CFO have concluded that our
disclosure controls and procedures were effective, as of March 31, 2006, to
provide reasonable assurance that information that is required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported, within the time periods specified
by the SEC's rules and forms. Disclosure controls and procedures, including
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's
management, including its CEO and CFO, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.

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, 2006, 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 this assessment, management has concluded that our internal
control over financial reporting was effective as of March 31, 2006. Its
assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include internal controls over financial reporting
of Morris because the acquisition occurred February 27, 2006. Morris' total
assets and total revenues represent 5 percent and

                                        39
<PAGE>

0.5 percent, respectively, of the Company's related consolidated financial
statement amounts as of and for the year ended March 31, 2006.

     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, 2006 as stated in
their report which is included in Part IV, 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 and procedures 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.

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.

                                        40
<PAGE>

                                    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
31, 2006.

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 31, 2006.

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 31, 2006.

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 31, 2006.

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 Registered Public Accounting Firm" in our definitive proxy
statement, which will be filed with the SEC no later than July 31, 2006.

                                        41
<PAGE>

                                    PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

     (1) Financial Statements:

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Registered Public Accounting Firm        F-1

Consolidated Statements of Operations for the years ended
  March 31, 2006, 2005 and 2004                                F-3

Consolidated Balance Sheets at March 31, 2006 and 2005         F-4

Consolidated Statements of Cash Flows for the years ended
  March 31, 2006, 2005 and 2004                                F-5

Consolidated Statements of Stockholders' Equity for the
  years ended
  March 31, 2006, 2005 and 2004                                F-6

Notes to Consolidated Financial Statements                     F-7
</Table>

     (2) Financial Statement Schedules:

<Table>
<S>                                                            <C>

Schedule II -- Valuation and Qualifying Accounts for the
  years ended
  March 31, 2006, 2005 and 2004                                  F-31
</Table>

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

     (3) Exhibits:

        NUMBER AND DESCRIPTION OF EXHIBIT

<Table>
           <S>            <C>
                    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   Amended and Restated Credit Agreement, dated as of May 9,
                          2006, among Metal Management, Inc. and certain subsidiaries
                          of Metal Management, Inc. specified therein, as borrowers,
                          the lenders party thereto and LaSalle Bank National
                          Association, in its capacity as agent for the lenders
                          (incorporated by reference to Exhibit 4.1 of the Company's
                          Current Report on Form 8-K dated May 10, 2006).
</Table>

                                        42
<PAGE>
<Table>
           <S>            <C>
                   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, as amended,
                          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   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). *
                   10.7   Terms of the Metal Management, Inc. Fiscal 2007 RONA
                          Incentive Compensation Plan Applicable to Executive
                          Officers. *
                   21.1   Subsidiaries of the Company.
                   23.1   Consent of Independent Registered Public Accounting Firm.
                   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.
</Table>

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

* Management contracts and compensatory plans and arrangements required to be
  filed as exhibits pursuant to Item 15(b) of this report.

                                        43
<PAGE>

                                   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 25, 2006.

                                          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 25, 2006.

<Table>
<Caption>
                        SIGNATURE                                              TITLE
                        ---------                                              -----
<C>     <C>                                                   <S>

               /s/ Norman R. Bobins                           Director
--------------------------------------------------
                 Norman R. Bobins


               /s/ Daniel W. Dienst                           Chairman of the Board,
--------------------------------------------------            Chief Executive Officer
                 Daniel W. Dienst                             and President
                                                              (Principal Executive Officer)


               /s/ John T. DiLacqua                           Director
--------------------------------------------------
                 John T. DiLacqua


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


                 /s/ Robert Lewon                             Director
--------------------------------------------------
                   Robert Lewon


               /s/ Gerald E. Morris                           Director
--------------------------------------------------
                 Gerald E. Morris


                /s/ Amit N. Patel                             Vice President, Finance and Controller
--------------------------------------------------            (Principal Accounting Officer)
                  Amit N. Patel
</Table>

                                        44
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have completed integrated audits of Metal Management, Inc.'s 2006 and 2005
consolidated financial statements and of its internal control over financial
reporting as of March 31, 2006 and an audit of its 2004 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,
2006 and 2005, and the results of their operations and their cash flows for each
of the three years in the period ended March 31, 2006 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 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, 2006 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,
2006, 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
<PAGE>

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.

As described in Management's Report on Internal Control Over Financial
Reporting, management has excluded the acquired net assets of Morris Recycling,
Inc. ("Morris") from its assessment of internal control over financial reporting
as of March 31, 2006 because it was acquired by the Company in a purchase
business combination on February 27, 2006. We have also excluded Morris from our
audit of internal control over financial reporting. Morris' total assets and
total revenues represent 5 percent and 0.5 percent, respectively, of the related
consolidated financial statement amounts as of and for the year ended March 31,
2006.

PricewaterhouseCoopers LLP
Chicago, Illinois
May 25, 2006

                                       F-2
<PAGE>

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

<Table>
<Caption>
                                                               YEARS ENDED MARCH 31,
                                                      ---------------------------------------
                                                         2006          2005          2004
                                                         ----          ----          ----
<S>                                                   <C>           <C>           <C>
NET SALES                                             $ 1,589,126   $ 1,701,958   $ 1,083,413

OPERATING EXPENSES:
 Cost of sales (excluding depreciation)                 1,400,285     1,460,614       923,000
 General and administrative expense                        81,576        79,816        60,963
 Depreciation and amortization expense                     19,192        18,634        18,193
 Asset impairment and severance charges (Note 3)            1,306             0         6,198
                                                      -----------   -----------   -----------

OPERATING INCOME                                           86,767       142,894        75,059
Income from joint ventures (Note 2)                         9,716        14,200         8,300
Interest expense                                           (1,578)       (3,298)       (6,925)
Interest and other income (expense), net                    1,891           257          (902)
Loss on debt extinguishment                                     0        (1,653)         (363)
                                                      -----------   -----------   -----------

Income before income taxes                                 96,796       152,400        75,169
Provision for income taxes (Note 9)                        36,532        60,150        23,780
                                                      -----------   -----------   -----------
NET INCOME                                            $    60,264   $    92,250   $    51,389
                                                      ===========   ===========   ===========
EARNINGS PER SHARE:
      Basic                                           $      2.45   $      3.96   $      2.42
                                                      ===========   ===========   ===========
      Diluted                                         $      2.35   $      3.74   $      2.27
                                                      ===========   ===========   ===========
CASH DIVIDENDS DECLARED PER SHARE                     $      0.30   $      0.15   $      0.00
                                                      ===========   ===========   ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
      Basic                                                24,579        23,279        21,243
                                                      ===========   ===========   ===========
      Diluted                                              25,670        24,659        22,653
                                                      ===========   ===========   ===========
</Table>

          See accompanying notes to consolidated financial statements

                                       F-3
<PAGE>

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

<Table>
<Caption>
                                                                     MARCH 31,
                                                              -----------------------
                                                                 2006         2005
                           ASSETS                                ----         ----
<S>                                                           <C>          <C>
Current assets:
   Cash and cash equivalents                                  $   37,717   $   52,821
   Short-term investments                                         36,035            0
   Accounts receivable, net                                      168,025      153,056
   Inventories (Note 5)                                          100,683       96,345
   Deferred income taxes (Note 9)                                  4,842        5,103
   Prepaid expenses and other assets                               7,848        4,193
                                                              ----------   ----------
         TOTAL CURRENT ASSETS                                    355,150      311,518
Property and equipment, net (Note 5)                             134,674      111,253
Goodwill (Note 7)                                                  2,078        1,280
Intangible assets, net (Note 7)                                    5,376        1,311
Deferred income taxes, net (Note 9)                               10,306       10,996
Investments in joint ventures (Note 2)                            45,487       39,782
Other assets                                                       2,246        2,642
                                                              ----------   ----------
                        TOTAL ASSETS                          $  555,317   $  478,782
                                                              ==========   ==========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt (Note 8)                 $    1,164   $      367
   Accounts payable                                              119,477      122,666
   Income taxes payable                                            6,526        3,601
   Other accrued liabilities (Note 5)                             37,037       31,686
                                                              ----------   ----------
         TOTAL CURRENT LIABILITIES                               164,204      158,320
Long-term debt, less current portion (Note 8)                      2,084        2,164
Other liabilities                                                  5,140        5,682
                                                              ----------   ----------
         TOTAL LONG-TERM LIABILITIES                               7,224        7,846
Commitments and contingencies (Note 11)

Stockholders' equity (Note 12):
      Preferred stock, $.01 par value; $1,000 stated value;
       2,000 shares authorized; none issued and outstanding
       at March 31, 2006 and 2005                                      0            0
      Common stock, $.01 par value, 50,000 shares
       authorized; 25,987 and
         24,878 shares issued and outstanding at March 31,
       2006 and 2005,
         respectively                                                260          249
      Series A Warrants                                              179          395
      Additional paid-in capital                                 183,529      167,649
      Deferred compensation                                       (5,045)      (8,154)
      Accumulated other comprehensive loss                        (2,046)      (1,913)
      Retained earnings                                          207,012      154,390
                                                              ----------   ----------
         TOTAL STOCKHOLDERS' EQUITY                              383,889      312,616
                                                              ----------   ----------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $  555,317   $  478,782
                                                              ==========   ==========
</Table>

          See accompanying notes to consolidated financial statements

                                       F-4
<PAGE>

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

<Table>
<Caption>
                                                                      YEARS ENDED MARCH 31,
                                                              -------------------------------------
                                                                2006         2005          2004
                                                                ----         ----          ----
<S>                                                           <C>         <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $  60,264   $    92,250   $    51,389
Adjustments to reconcile net income to cash flows from
   operating
   activities:
      Depreciation and amortization                              19,192        18,634        18,193
      Deferred income taxes                                       2,552        29,097        11,403
      Income from joint ventures                                 (9,467)      (14,200)       (8,300)
      Distribution of earnings from joint ventures                4,360             0             0
      Stock-based compensation expense                            7,230         4,823           972
      Asset impairment and severance charges                      1,306             0           607
      Amortization of debt issuance costs                           635           730         1,280
      Loss on debt extinguishment                                     0         1,653           363
      Loss on sale of property and equipment                         93           747           886
      Provision for uncollectible receivables                       378         1,426         1,186
      Tax benefit on exercise of stock options and warrants       1,727         9,965         9,907
      Other                                                         659           454           567
   Changes in assets and liabilities, net of acquisitions:
      Accounts receivable                                        (4,071)       (8,054)      (80,831)
      Inventories                                                   956       (16,217)      (30,809)
      Accounts payable                                          (11,221)       (7,415)       71,357
      Income taxes                                                1,160           922         1,132
      Other                                                      (3,193)        7,150         5,570
                                                              ---------   -----------   -----------
Net cash provided by operating activities                        72,560       121,965        54,872
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of property and equipment                       (28,219)      (15,574)      (14,995)
      Proceeds from sale of property and equipment                1,124         1,329           624
      Purchases of short-term investments                      (159,635)            0             0
      Sales of short-term investments                           123,600             0             0
      Distributions of capital from joint ventures                1,750             0             0
      Investments in joint ventures                              (2,348)      (14,990)         (138)
      Acquisitions, net of cash acquired                        (24,271)         (200)       (1,071)
                                                              ---------   -----------   -----------
Net cash used in investing activities                           (87,999)      (29,435)      (15,580)
CASH FLOWS FROM FINANCING ACTIVITIES:
      Issuances of long-term debt                               433,077     1,676,707     1,017,225
      Repayments of long-term debt                             (433,357)   (1,718,473)   (1,031,005)
      Repurchase of junior secured notes                              0             0       (31,896)
      Proceeds from exercise of stock options and warrants        8,174         6,016         9,660
      Proceeds from issuance of stock under employee stock
         purchase plan                                               83             0             0
      Cash dividends paid to stockholders                        (7,642)       (3,667)            0
      Other                                                           0        (1,447)       (2,990)
                                                              ---------   -----------   -----------
Net cash provided by (used in) financing activities                 335       (40,864)      (39,006)
                                                              ---------   -----------   -----------

Net increase (decrease) in cash and cash equivalents            (15,104)       51,666           286
Cash and cash equivalents at beginning of period                 52,821         1,155           869
                                                              ---------   -----------   -----------
Cash and cash equivalents at end of period                    $  37,717   $    52,821   $     1,155
                                                              =========   ===========   ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid                                                 $     936   $     2,654   $     6,922
Taxes paid, net of refunds                                    $  31,038   $    18,402   $     1,337
</Table>

          See accompanying notes to consolidated financial statements

                                       F-5
<PAGE>

                             METAL MANAGEMENT, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
<Table>
<Caption>
                                                  NEW                                                                ACCUMULATED
                                                 COMMON     COMMON STOCK                ADDITIONAL                      OTHER
                                                EQUITY -    ------------                 PAID-IN       DEFERRED     COMPREHENSIVE
                                                ISSUABLE   SHARES   AMOUNT   WARRANTS    CAPITAL     COMPENSATION       LOSS
                                                --------   ------   ------   --------    -------     ------------       ----
<S>                                             <C>        <C>      <C>      <C>        <C>          <C>            <C>
BALANCE AT MARCH 31, 2003                         $  98    20,305   $ 203     $  423    $  65,352      $      0       $ (2,212)
Net income                                            0        0        0          0            0             0              0
Adjustment to pension liability, net                                                                                       (91)
Total comprehensive income
Distribution of equity in accordance with the
   Plan                                             (98)       4        0          8           90             0              0
Issuance of restricted stock and options              0      560        6          0        9,867        (9,865)             0
Exercise of stock options and warrants and
   related tax benefits                               0    2,486       25         (4)      19,546             0              0
Reversal of predecessor company valuation
   allowance (Note 9)                                 0        0        0          0       52,114             0              0
Stock-based compensation expense                      0        0        0          0            0         1,570              0
                                                  -----    ------   ------    ------    ---------      --------       --------
BALANCE AT MARCH 31, 2004                             0    23,355     234        427      146,969        (8,295)        (2,303)
Net income                                            0        0        0          0            0             0              0
Adjustment to pension liability, net                                                                                       390
Total comprehensive income
Issuance of restricted stock                          0      182        2          0        4,680        (4,682)             0
Exercise of stock options and warrants and
   related
   tax benefits                                       0    1,341       13        (32)      16,000             0              0
Cash dividends paid to stockholders                   0        0        0          0            0             0              0
Stock-based compensation expense                      0        0        0          0            0         4,823              0
                                                  -----    ------   ------    ------    ---------      --------       --------
BALANCE AT MARCH 31, 2005                             0    24,878     249        395      167,649        (8,154)        (1,913)
Net income                                            0        0        0          0            0             0              0
Adjustment to pension liability, net                                                                                      (133)
Total comprehensive income
Issuance of restricted stock, net of
   cancellations                                      0      201        2          0        4,119        (4,121)             0
Issuance of stock under employee stock
   purchase plan                                      0        4        0          0           83             0              0
Exercise of stock options and warrants and
   related
   tax benefits                                       0      904        9       (216)      10,108             0              0
Cash dividends paid to stockholders                   0        0        0          0            0             0              0
Stock-based compensation expense                      0        0        0          0            0         7,230              0
Other                                                 0        0        0          0        1,570             0              0
                                                  -----    ------   ------    ------    ---------      --------       --------
BALANCE AT MARCH 31, 2006                         $   0    25,987   $ 260     $  179    $ 183,529      $ (5,045)      $ (2,046)
                                                  =====    ======   ======    ======    =========      ========       ========

<Caption>

                                                RETAINED
                                                EARNINGS      TOTAL
                                                --------      -----
<S>                                             <C>         <C>
BALANCE AT MARCH 31, 2003                       $  14,418   $  78,282
Net income                                         51,389      51,389
Adjustment to pension liability, net                              (91)
                                                            ---------
Total comprehensive income                                     51,298
Distribution of equity in accordance with the
   Plan                                                 0           0
Issuance of restricted stock and options                0           8
Exercise of stock options and warrants and
   related tax benefits                                 0      19,567
Reversal of predecessor company valuation
   allowance (Note 9)                                   0      52,114
Stock-based compensation expense                        0       1,570
                                                ---------   ---------
BALANCE AT MARCH 31, 2004                          65,807     202,839
Net income                                         92,250      92,250
Adjustment to pension liability, net                              390
                                                            ---------
Total comprehensive income                                     92,640
Issuance of restricted stock                            0           0
Exercise of stock options and warrants and
   related
   tax benefits                                         0      15,981
Cash dividends paid to stockholders                (3,667)     (3,667)
Stock-based compensation expense                        0       4,823
                                                ---------   ---------
BALANCE AT MARCH 31, 2005                         154,390     312,616
Net income                                         60,264      60,264
Adjustment to pension liability, net                             (133)
                                                            ---------
Total comprehensive income                                     60,131
Issuance of restricted stock, net of
   cancellations                                        0           0
Issuance of stock under employee stock
   purchase plan                                        0          83
Exercise of stock options and warrants and
   related
   tax benefits                                         0       9,901
Cash dividends paid to stockholders                (7,642)     (7,642)
Stock-based compensation expense                        0       7,230
Other                                                   0       1,570
                                                ---------   ---------
BALANCE AT MARCH 31, 2006                       $ 207,012   $ 383,889
                                                =========   =========
</Table>

          See accompanying notes to consolidated financial statements

                                       F-6
<PAGE>

                             METAL MANAGEMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company
     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 scrap metals. The Company
collects industrial scrap metal and obsolete scrap metal, processes it into
reusable forms, and supplies the recycled scrap 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 16 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. In the consolidated
statements of cash flows, the Company reclassified book overdrafts from cash
flows from financing activities to cash flows from operating activities. Other
such reclassifications had no material effect on the previously reported
consolidated balance sheet, results of operations or cash flows of the Company.

Uses of Estimates
     The preparation of financial statements in 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. The Company reviews its estimates and assumptions on an
on-going basis. 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 tolling,
stevedoring and dismantling are insignificant to the Company.

     The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin ("SAB") No. 104, "Revenue Recognition." Revenues from processed ferrous
and non-ferrous scrap metal sales are recognized when title and risk of loss
have passed 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
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

<Table>
<Caption>
                                             YEARS ENDED MARCH 31,
                                    ---------------------------------------
                                       2006          2005          2004
                                       ----          ----          ----
<S>                                 <C>           <C>           <C>
Ferrous metals                      $ 1,019,856   $ 1,218,079   $   766,649
Non-ferrous metals                      484,748       406,864       254,737
Brokerage - ferrous                      55,953        54,080        42,548
Brokerage - non-ferrous                   6,507         3,350         2,017
Other                                    22,062        19,585        17,462
                                    -----------   -----------   -----------
            Net sales               $ 1,589,126   $ 1,701,958   $ 1,083,413
                                    ===========   ===========   ===========
</Table>

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. At March 31, 2006, cash
equivalents included investments in overnight commercial paper of $31.2 million.
The carrying amount of cash and cash equivalents approximates fair value.

Short-term Investments
     All investments with original maturities of greater than 90 days are
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company determines the
appropriate classification at the time of purchase. The Company's short-term
investments mainly consist of investments in auction rate securities which are
classified as available-for-sale. Auction rate securities consist of tax-free
bonds issued by municipalities which mainly carry AAA ratings. Investments in
auction rate securities are recorded at cost, which approximates fair value due
to their variable interest rates which reset every 7 to 30 days. As a result,
these securities are classified as current assets. Despite the long-term nature
of their stated contractual maturities, there is a readily liquid market for
these securities. As a result, the Company had no cumulative gross unrealized
holding gains (losses) or gross realized gains (losses) from its short-term
investments. All income generated from these investments was recorded as other
income.

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 $1.8 million and $2.7 million at March 31, 2006 and 2005,
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, and 3 to 10 years for automobiles and trucks.
When assets are sold or otherwise disposed of, the cost and related

                                       F-8
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

accumulated depreciation are removed from the accounts and any gain or loss is
recorded in the statement of operations.

Goodwill and 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.
Each year, the Company tests for impairment of goodwill using a two-step
approach. In the first step, the Company estimates the fair value of its
reporting units using the present value of future cash flows. If the carrying
amount exceeds the fair value, the second step is performed to measure the
amount the impairment loss. In the second step, the implied value of the
goodwill is estimated as the fair value of the reporting unit used in the first
step reduced by the fair values of other tangible and intangible assets of the
reporting unit. An impairment loss is recognized in an amount equal to the
excess of the carrying value over the fair value of goodwill, not exceeding the
carrying amount of the goodwill. At March 31, 2006, the Company determined that
no impairment existed as a result of its annual impairment test.

     Intangible assets consist of customer lists and non-competition agreements.
The Company amortizes intangible assets over the estimated useful life or the
term of the related agreements.

Impairment of Long-Lived Assets
     The Company periodically evaluates the recoverability of its long-lived
assets (including 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 such impairment exists,
the impairment to be recognized is equal to the amount by which the carrying
amount of the assets exceeds its estimated fair value using a discounted cash
flow analysis.

Deferred Financing Costs
     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, 2006, 2005 and
2004 were $0.6 million, $0.7 million and $1.3 million, respectively. The
deferred financing cost accumulated amortization at March 31, 2006 and 2005 was
$1.1 million and $0.5 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.

     The Company assesses the realizability of deferred tax assets based on
whether management considers whether its more likely than not that some portion
or all of the deferred tax assets will not be realized. A valuation allowance is
recorded for the portion of the deferred tax assets that are not expected to be
realized based on the level of historical taxable income or projections for
future taxable income over the periods in which the temporary differences are
deductible.

                                       F-9
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Concentration of Credit Risk
     Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable.
The Company sells its products primarily to scrap metal brokers and steel mills
located in the U.S. The Company performs periodic credit evaluations of its
customers and provides credit in the normal course of business to a large number
of its customers. 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 or are paid in advance of shipment (except for railcar or barge shipments
to Mexico).

     For the year ended March 31, 2006, the ten largest customers of the Company
represented approximately 48% of consolidated net sales. These customers
comprised approximately 38% of accounts receivable at March 31, 2006. Sales
during the year ended March 31, 2006 to The David J. Joseph Company represented
approximately 20% of consolidated net sales.

     For the year ended March 31, 2006, export sales represented approximately
30% of consolidated net sales. At March 31, 2006, receivables from foreign
customers represented approximately 5% of consolidated accounts receivable.
Sales to customers in China and Turkey represented approximately 13% and 11% of
consolidated net sales during the year ended March 31, 2006, respectively.

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 during the period. Diluted EPS
reflects the potential dilution that could occur from the exercise of stock
options and warrants and from unvested restricted stock.

Fair Value of Financial Instruments
     The fair values of financial instruments including accounts receivable,
short-term investments, 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 carrying value of the Company's
borrowings approximates fair value at March 31, 2006 and 2005.

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.

                                       F-10
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     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):

<Table>
<Caption>
                                                      YEARS ENDED MARCH 31,
                                            -----------------------------------------
                                               2006           2005           2004
                                            -----------    -----------    -----------
<S>                                         <C>            <C>            <C>
Net income, as reported                     $    60,264    $    92,250    $    51,389
  Add: Stock-based compensation
      expense included in reported net
      income,
      net of related tax effects                  4,501          2,918          1,079
Deduct: Total stock-based compensation
  expense determined under the fair value
  method for all awards, net of related
  tax effects                                    (5,446)        (4,523)        (4,253)
                                            -----------    -----------    -----------

  PRO FORMA NET INCOME                      $    59,319    $    90,645    $    48,215
                                            ===========    ===========    ===========

  Earnings per share:
      Basic - as reported                   $      2.45    $      3.96    $      2.42
                                            ===========    ===========    ===========
      Basic - pro forma                     $      2.41    $      3.89    $      2.27
                                            ===========    ===========    ===========

      Diluted - as reported                 $      2.35    $      3.74    $      2.27
                                            ===========    ===========    ===========
      Diluted - pro forma                   $      2.30    $      3.67    $      2.11
                                            ===========    ===========    ===========

  ASSUMPTIONS:
  Expected life (years)                          2              4              4
  Expected volatility                          49.5%          95.1%         106.7%
  Dividend yield *                             1.3%           0.00%          0.00%
  Risk-free interest rate                      3.52%          2.68%          2.28%

  Weighted-average fair value per option
      granted                               $      7.13    $     11.80    $      7.91
</Table>

-------------------------------------
     * 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.

     The fair value of each option 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.
In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.

Self-insured Accruals
     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
of 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).

                                       F-11
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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. 123(R), "Share-Based Payment."
The revised statement eliminates the ability to account for share-based
compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued
to Employees." 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 adopted 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"). At March
31, 2006, the aggregate value of nonvested awards, as determined using a
Black-Scholes option valuation model, was $0.3 million. This amount will be
recognized over the remaining vesting period of the awards.

     In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47,
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
FASB Statement No. 143." FIN 47 clarifies that conditional asset retirement
obligations meet the definition of liabilities and should be recognized when
incurred if their fair values can be reasonably estimated. The Company
implemented FIN 47 at March 31, 2006. The adoption of this interpretation was
not material to the Company's consolidated financial statements.

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and SFAS No. 3." This
statement provides guidance on the accounting for and reporting of accounting
changes and error corrections. It requires, unless impracticable, retrospective
application for reporting a change in accounting principle, unless the newly
adopted accounting principle specifies otherwise, and reporting of a correction
of an error. The provisions of this statement are effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The adoption of this statement is not expected to materially impact
the Company's consolidated financial statements.

NOTE 2 - EQUITY METHOD INVESTMENTS

     At March 31, 2006, the Company had investments in four joint ventures in
which it owned between 28.5% and 50% of the joint venture interests. The most
significant joint venture investment was in Southern Recycling, L.L.C.
("Southern"), one of the largest scrap metals recyclers in the Gulf Coast
region, in which the Company had a 28.5% interest. On April 28, 2006, Southern
was purchased by European Metal Recycling Ltd. (EMR) for $161.4 million in cash.
Based upon its ownership interest, the Company received approximately $46
million in cash. In the three months ending June 30, 2006, the Company will
record a pre-tax gain on the sale of its ownership interest in Southern in the
range of $25 million to $27 million.

     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 has contributed approxi-

                                       F-12
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

mately $11.1 million in cash through March 31, 2006, in addition to marketing,
operational and development expertise to 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
during the year ended March 31, 2005 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 all the
Company's joint ventures (in thousands):

<Table>
<Caption>
                                 YEARS ENDED MARCH 31,
                       ------------------------------------------
                          2006            2005            2004
                       ----------      ----------      ----------
<S>                    <C>             <C>             <C>
Net sales              $  286,657      $  290,856      $  203,655
Operating income           24,743          48,903          30,907
Pre-tax income             30,492          48,787          29,598
</Table>

<Table>
<Caption>
                               MARCH 31,
                       --------------------------
                          2006            2005
                       ----------      ----------
<S>                    <C>             <C>             <C>
Current assets         $   90,609      $   94,537
Noncurrent assets          51,973          37,954
Current liabilities        20,745          14,552
Noncurrent
   liabilities              3,376           3,712
</Table>

NOTE 3 - ASSET IMPAIRMENT AND SEVERANCE CHARGES

     During the years ended March 31, 2004, 2005 and 2006, the Company recorded
the following asset impairment and severance charges and related reserve
activity (in thousands):

<Table>
<Caption>
                                        SEVERANCE AND     ASSET
                                        OTHER CHARGES   IMPAIRMENT    TOTAL
                                        -------------   ----------   --------
<S>                                     <C>             <C>          <C>
Reserve balances at March 31, 2003        $      0       $      0    $      0
Charge to income                             6,198              0       6,198
Cash payments                               (4,020)             0      (4,020)
Non-cash application                          (607)             0        (607)
                                          --------       --------    --------
Reserve balances at March 31, 2004           1,571              0       1,571
Cash payments                                 (317)             0        (317)
                                          --------       --------    --------
Reserve balances at March 31, 2005           1,254              0       1,254
Charge to income                                 0          1,306       1,306
Non-cash application                             0         (1,306)     (1,306)
                                          --------       --------    --------
Reserve balances at March 31, 2006        $  1,254       $      0    $  1,254
                                          ========       ========    ========
</Table>

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 severance and other charges.
Approximately $0.6 million of the charges were non-cash and related to the
accelerated vesting of restricted stock. 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 A. Cozzi, Frank J. Cozzi and the other
employees that resulted in the payment of employee termination benefits. As of
March 31, 2006, approximately $1.2 million was remaining to be paid, which is
reflected in other accrued liabilities. These

                                       F-13
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

payments were to be made in July 2005, however, the Company is contesting these
payments (see Note 11 - Commitments and Contingencies).

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.

Year ended March 31, 2006 activity
     During the year ended March 31, 2006, the Company completed a strategy
designed to improve the profitability of its Chicago-area scrap yards. As a part
of that strategy, a decision was made to consolidate processing activities at
the Chicago-area scrap yards which resulted in the Company idling a shredder and
a baler. The baler was sold to a third party at approximately its net book
value. The shredder is categorized as held and used and its carrying value was
written down to its estimated fair value resulting in a $1.0 million asset
impairment charge.

     The Company evaluated the recoverability of the customer list intangible
asset and determined that the retention rate of the customers was lower than
anticipated in the original intangible asset appraisal. As a result, the Company
recorded an asset impairment charge of $0.3 million related to the customer list
intangible asset.

NOTE 4 - EARNINGS PER SHARE

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

<Table>
<Caption>
                                                          YEARS ENDED MARCH 31,
                                              ---------------------------------------------
                                                  2006            2005            2004
                                              -------------   -------------   -------------
<S>                                           <C>             <C>             <C>
NUMERATOR:
Net income                                    $      60,264   $      92,250   $      51,389
                                              =============   =============   =============
DENOMINATOR:
Weighted average common shares outstanding,
   basic                                             24,579          23,279          21,243
Incremental common shares attributable to
   dilutive
   stock options and warrants                           757           1,202           1,399
Incremental common shares attributable to
   unvested restricted stock                            334             178              11
                                              -------------   -------------   -------------
Weighted average common shares outstanding,
   diluted                                           25,670          24,659          22,653
                                              =============   =============   =============
Basic income per share                        $        2.45   $        3.96   $        2.42
                                              =============   =============   =============
Diluted income per share                      $        2.35   $        3.74   $        2.27
                                              =============   =============   =============
</Table>

     For the years ended March 31, 2006, 2005 and 2004, options and warrants to
purchase approximately 0.3 million, 0.3 million and 0.7 million 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.

                                       F-14
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 5 - 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):

<Table>
<Caption>
                                           2006          2005
                                       ------------   -----------
<S>                                    <C>            <C>
Ferrous metals                         $     43,574   $    58,215
Non-ferrous metals                           56,841        37,888
Other                                           268           242
                                       ------------   -----------
                                       $    100,683   $    96,345
                                       ============   ===========
</Table>

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

<Table>
<Caption>
                                       2006           2005
                                    -----------    -----------
<S>                                 <C>            <C>
Land and improvements               $    34,069    $    30,704
Buildings and improvements               26,524         22,069
Operating machinery and equipment       126,322         98,978
Automobiles and trucks                   11,691         10,687
Computer equipment and software           2,161          1,995
Furniture, fixture and office
   equipment                              1,071            790
Construction in progress                  7,469          6,709
                                    -----------    -----------
                                        209,307        171,932
Less - accumulated depreciation         (74,633)       (60,679)
                                    -----------    -----------
                                    $   134,674    $   111,253
                                    ===========    ===========
</Table>

     Depreciation expense was $19.0 million, $18.5 million, and $18.0 million
for the years ended March 31, 2006, 2005 and 2004, respectively.

     On March 6, 2006, the Company entered into a land purchase agreement for a
parcel of property upon which a mega-shredder will be installed. The total cost
of the land was $10.0 million. A deposit of $0.5 million was made, which was
reflected in construction in progress at March 31, 2006. The land purchase
closed on April 7, 2006.

     At March 31, 2006, construction in progress included $4.0 million of
progress payments made towards the construction of a stevedoring crane. The
stevedoring crane was completed and delivered to the Company on April 19, 2006.
The total cost of the stevedoring crane was approximately $6.0 million and the
remaining amount was paid on the delivery date.

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

<Table>
<Caption>
                                                   2006           2005
                                                -----------    -----------
<S>                                             <C>            <C>
  Accrued employee compensation and benefits    $    22,137    $    21,731
  Accrued insurance                                   5,118          4,324
  Accrued equipment purchase                          4,000              0
  Other                                               5,782          5,631
                                                -----------    -----------
                                                $    37,037    $    31,686
                                                ===========    ===========
</Table>

                                       F-15
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 6 - ACQUISITIONS

     The Company accounts for acquisitions using the purchase method of
accounting. The results of operations for companies acquired are included in the
Company's consolidated financial statements for periods subsequent to the date
of the acquisition. The Company did not have any significant acquisitions in the
years ended March 31, 2005 or 2004.

     On February 27, 2006, the Company acquired the assets of Morris Recycling,
Inc. ("Morris"), a full service scrap metal recycler with nine operating
facilities in Mississippi, including a shredding plant adjacent to the
Mississippi River, and one facility in Arkansas. The total purchase price was
approximately $25.8 million, which consisted of $24.0 million in cash, $1.5
million of cash paid in April 2006 pursuant to a working capital adjustment, and
$0.3 million in transaction costs. The working capital adjustment was accrued at
March 31, 2006 in other accrued liabilities.

     The Company obtained independent valuations of the tangible and intangible
assets associated with the purchase and allocated the purchase consideration as
follows (in thousands):

<Table>
                      <S>                                   <C>
                      Cash acquired                         $     178
                      Other tangible assets acquired           29,953
                      Amortizable intangible assets             4,666
                      Goodwill                                    597
                                                            ---------
                         Total assets acquired                 35,394
                      Liabilities assumed                      (9,581)
                                                            ---------
                         Total                              $  25,813
                                                            =========
</Table>

     The amortizable intangible assets consist primarily of a customer list
intangible asset that is being amortized over fifteen years. Goodwill of $0.6
million will be deductible for tax purposes. The purchase price allocation may
be subject to revision if additional information on the fair value of assets and
liabilities becomes available. Any change in the fair value of the net assets
will change the amount of the purchase price allocable to goodwill. The pro
forma effects of this acquisition on the Company's consolidated financial
statements were not significant.

NOTE 7 - GOODWILL AND INTANGIBLE ASSETS

     The changes in the carrying amount of goodwill for the years ended March
31, 2005 and 2006 are as follows (in thousands):

<Table>
<S>                                                <C>
Balance at March 31, 2004                          $    1,176
Settlement of purchase price contingencies                104
                                                   ----------
Balance at March 31, 2005                               1,280
Settlement of purchase price contingencies                201
Acquisitions (see Note 6)                                 597
                                                   ----------
Balance at March 31, 2006                          $    2,078
                                                   ==========
</Table>

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

<Table>
<Caption>
                                    2006                        2005
                          -------------------------   -------------------------
                            GROSS                       GROSS
                           CARRYING    ACCUMULATED     CARRYING    ACCUMULATED
                            AMOUNT     AMORTIZATION     AMOUNT     AMORTIZATION
                            ------     ------------     ------     ------------
<S>                       <C>          <C>            <C>          <C>
Customer lists            $    4,900    $     (313)   $    1,280    $     (213)
Non-compete agreements         1,025          (240)          290          (144)
Pension plan intangible            4             0            98             0
                          ----------    ----------    ----------    ----------
 Intangibles Assets       $    5,929    $     (553)   $    1,668    $     (357)
                          ==========    ==========    ==========    ==========
</Table>

                                       F-16
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     Total amortization expense for intangible assets for the years ended March
31, 2006, 2005 and 2004 were $196,000, $159,000 and $145,000, respectively.
Based on the current amount of intangible assets subject to amortization, the
estimated amortization expense for intangible assets for the next five years is
as follows (in thousands):

<Table>
<Caption>
 FISCAL YEAR ENDING MARCH 31,
-------------------------------
<S>                     <C>
2007                    $   631
2008                        505
2009                        491
2010                        382
2011                        355
</Table>

NOTE 8 - LONG-TERM DEBT

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

<Table>
<Caption>
                                                                        2006        2005
                                                                      ---------   ---------
            <S>                                                       <C>         <C>
            Mortgage loan (interest rate of 5.50%) due January 2009   $   1,920   $   2,193
            Other debt, due 2006 to 2010, average interest rate of
               2.7% in 2006 and 4.5% in 2005, with equipment and
               real estate generally pledged as collateral                1,328         338
                                                                      ---------   ---------
                                                                          3,248       2,531
            Less -- current portion of long-term debt                    (1,164)       (367)
                                                                      ---------   ---------
                                                                      $   2,084   $   2,164
                                                                      =========   =========
</Table>

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

<Table>
<Caption>
  FISCAL YEAR ENDING MARCH 31,
--------------------------------
<S>                     <C>
2007                    $  1,164
2008                         425
2009                       1,456
2010                         139
2011                          64
                        --------
Total                   $  3,248
                        ========
</Table>

Credit Agreement
     On May 9, 2006, the Company entered into a $300 million secured five-year
revolving credit and letter of credit facility, with a maturity date of May 1,
2011 (the "New Credit Agreement"). The New Credit Agreement replaces the
Company's previous $200 million secured revolving and letter of credit facility,
as amended, which had a maturity date of June 28, 2008 (the "Old Credit
Agreement"). In consideration for the New Credit Agreement, the Company incurred
fees and expenses of approximately $0.6 million. Pursuant to the New Credit
Agreement, the Company will pay a fee on the undrawn portion of the facility
that is determined by the leverage ratio (currently .175% per annum).
Significant covenants under the New Credit Agreement include the satisfaction of
a leverage ratio and interest coverage ratio. In addition, the New Credit
Agreement permits capital expenditures of up to $75 million for the year ending
March 31, 2007 and $65 million in each of the following four fiscal years.

     The New Credit Agreement provides for interest rates based on variable
rates tied to the prime rate plus or minus 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 New Credit Agreement) as determined for the
trailing four fiscal quarters. Based on the current leverage ratio, the margins
are either LIBOR plus .875% or prime rate minus .25%.

                                       F-17
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     At March 31, 2006, the Company had no borrowings outstanding under the Old
Credit Agreement. Borrowings under the Old Credit Agreement were 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.
Pursuant to the Old Credit Agreement, the Company paid a fee on the undrawn
portion of the facility that was determined by the leverage ratio. As of March
31, 2006, that fee was .25% per annum. The New Credit Agreement has no borrowing
base requirements.

Mortgage Loan
     In January 2004, the Company purchased land on which it operates a scrap
metals recycling facility for $4.0 million. The Company financed $2.5 million of
the purchase price from a mortgage loan which bears interest at 5.50% and is due
on January 1, 2009. The mortgage loan contains a balloon payment of $1.1
million.

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
junior secured notes were cancelled following the redemption of the remaining
notes on September 18, 2003.

     In connection with entering into the Old Credit Agreement in June 2004, the
Company recognized a loss on debt extinguishment of $1.7 million. This amount
represented 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):

<Table>
<Caption>
                                                YEARS ENDED MARCH 31,
                                       ----------------------------------------
                                          2006           2005           2004
                                       ----------     ----------     ----------
           <S>                         <C>            <C>            <C>
           Federal:
              Current                  $   29,748     $   23,419     $      683
              Deferred                      1,693         27,312         20,648
                                       ----------     ----------     ----------
                                           31,441         50,731         21,331
                                       ----------     ----------     ----------
           State:
              Current                  $    4,232     $    7,477     $      872
              Deferred                        859          1,942          1,577
                                       ----------     ----------     ----------
                                            5,091          9,419          2,449
                                       ----------     ----------     ----------
           Total tax provision         $   36,532     $   60,150     $   23,780
                                       ==========     ==========     ==========
</Table>

                                       F-18
<PAGE>
                             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):

<Table>
<Caption>
                                                         2006         2005
                                                      ----------   ----------
<S>                                                   <C>          <C>
Deferred tax assets:
   State net operating loss carryforward and tax
      credits                                         $    2,610   $    1,518
   Goodwill and other intangibles                         25,108       28,528
   Employee benefit accruals                               3,455        2,728
   Other                                                   3,480        3,700
                                                      ----------   ----------
                                                          34,653       36,474
                                                      ----------   ----------
Deferred tax liabilities:
   Depreciation                                          (16,698)     (18,560)
   Joint ventures                                         (1,149)        (443)
   Other                                                       0          (32)
                                                      ----------   ----------
                                                         (17,847)     (19,035)
                                                      ----------   ----------
Net deferred tax asset before valuation allowance         16,806       17,439
Valuation allowance                                       (1,658)      (1,340)
                                                      ----------   ----------
Net deferred tax asset                                $   15,148   $   16,099
                                                      ==========   ==========
</Table>

     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.

     At March 31, 2006, the Company had a $1.7 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. During the years ended March 31, 2006 and 2005, the
Company recorded tax benefits of $1.7 million and $10.0 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 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:

<Table>
<Caption>
                                                      YEARS ENDED MARCH 31,
                                             ----------------------------------------
                                                2006           2005           2004
                                             ----------     ----------     ----------
<S>                                          <C>            <C>            <C>
Statutory federal income tax rate                  35.0%          35.0%          35.0%
State income taxes, net of federal benefit          3.6            4.0            3.2
Non-deductible compensation                         1.7            1.4              -
Domestic manufacturing deduction                   (0.5)             -              -
Export sales benefit                               (2.0)          (1.1)          (3.8)
Loss on sale of capital stock                         -              -           (0.6)
Other                                              (0.1)           0.2           (2.2)
                                             ----------     ----------     ----------
Effective income tax rate                          37.7%          39.5%          31.6%
                                             ==========     ==========     ==========
</Table>

     On October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA") was
signed into law. The provision of the AJCA that mainly impacted the Company was
the phase-out of the extra-territorial income ("ETI") deduction, which will be
completely eliminated by December 31, 2006. The ETI deduction was replaced by a
domestic manufacturing deduction, which reduced the Company's effective tax rate
by 0.5% in the year ended March 31, 2006. However, the benefits of the domestic
manufacturing deduction will be less

                                       F-19
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

than the benefits provided by the ETI deduction, which will negatively impact
the Company's effective tax rate in future periods.

     In November 2005, the Internal Revenue Service ("IRS") commenced an
examination of the Company's federal income tax return for fiscal 2004. In March
2006, the IRS completed its exam and did not make any changes to the fiscal 2004
tax return. As a result, the Company reassessed its liabilities for tax
contingencies to reflect the closure of the IRS audit for fiscal 2004 and
recorded a $0.3 million reduction in these liabilities during the three months
ended March 31, 2006.

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 $0.7 million, $0.4 million and $0.3 million for the
years ended March 31, 2006, 2005 and 2004, respectively. 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):

<Table>
<Caption>
                                         YEARS ENDED MARCH 31,
                                    --------------------------------
                                      2006        2005        2004
                                    --------    --------    --------
<S>                                 <C>         <C>         <C>
Service cost                        $    166    $    131    $    116
Interest cost                            699         695         695
Expected return on plan assets          (697)       (630)       (528)
Amortization of prior service cost        94          94          94
Recognized net actuarial loss            196         133         121
                                    --------    --------    --------
Net periodic benefit cost           $    458    $    423    $    498
                                    ========    ========    ========
</Table>

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

<Table>
<Caption>
                                                  2006        2005
                                                ---------   ---------
<S>                                             <C>         <C>
Benefit obligation at beginning of year         $  12,479   $  11,247
Service cost                                          166         131
Interest cost                                         699         695
Benefits paid                                        (473)       (557)
Actuarial loss                                        412         963
                                                ---------   ---------
Benefit obligation at end of year               $  13,283   $  12,479
                                                =========   =========
Accumulated benefit obligation at end of year   $  12,637   $  11,920
                                                =========   =========
</Table>

                                       F-20
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     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):

<Table>
<Caption>
                                                  2006        2005
                                                ---------   ---------
<S>                                             <C>         <C>
Fair value of plan assets at beginning of year  $   8,597   $   7,277
Actual gain on plan assets                            710         470
Contributions                                         774       1,407
Benefits paid                                        (473)       (557)
                                                ---------   ---------
Fair value of plan assets at end of year        $   9,608   $   8,597
                                                =========   =========
</Table>

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

<Table>
<Caption>
                                                  2006        2005
                                                ---------   ---------
<S>                                             <C>         <C>
Funded status                                   $  (3,675)  $  (3,882)
Unrecognized prior service cost                       311          98
Unrecognized net loss                               3,695       3,694
                                                ---------   ---------
Net amount recognized                           $     331   $     (90)
                                                =========   =========
</Table>

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

<Table>
<Caption>
                                                 2006         2005
                                              ----------   ----------
<S>                                           <C>          <C>
Intangible asset                              $        4   $       98
Accrued benefit liability                         (3,028)      (3,324)
Accumulated other comprehensive loss               3,355        3,136
                                              ----------   ----------
Net amount recognized                         $      331   $      (90)
                                              ==========   ==========
</Table>

     Certain actuarial assumption such as the discount rate and long-term rate
of return on plan assets have a significant effect on the amounts reported for
net pension expense as well as the related obligation amounts of the Company's
pension plans. The assumed discount rate reflects the rates of high-quality debt
instruments that would provide the future cash flows necessary to pay benefits
when they come due. The assumed long-term rate of returns on pension assets
represents an estimate of long-term returns on an investment portfolio
consisting of a mixture of equity and debt securities and fixed income. In
determining the long-term rate of return, the Company takes into account the
current and expected asset allocations, as well as historical returns on plan
assets.

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

<Table>
<Caption>
                                          2006       2005       2004
                                         ------     ------     ------
<S>                                      <C>        <C>        <C>
Discount rate                             5.50%      5.75%      6.25%
Expected return on plan assets            8.00%      8.00%      8.00%
Rate of compensation increase*            5.00%      5.00%      5.00%
</Table>

        * 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, the discount rate continued to decline causing an unchanged funded status
of the pension plans. As a result, the Company recorded additional minimum
pension liabilities of $0.2 million and $0.8 million during the years ended
March 31, 2006 and 2005, respectively.

     The Company expects to make cash funding contributions to its pension plans
of approximately $1.1 million in the year ending March 31, 2007. The Company has
adopted an pension investment policy designed to meet or exceed the expected
rate of return on plan assets assumption, while preserving principal.

                                       F-21
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

To achieve this, the Company has retained professional investment managers that
invest plan assets in equity and debt securities and fixed income.

     The weighted-average asset allocation of the pension plan assets by asset
category and target range are as follows:

<Table>
<Caption>
                                                PENSION ASSETS
                                    --------------------------------------
                                                PERCENTAGE OF PLAN ASSETS
                                                       AT MARCH 31,
                                     TARGET     --------------------------
                                      RANGE       2006             2005
                                    ---------   ---------        ---------
<S>                                 <C>         <C>              <C>
Equity securities                   60% - 80%        65%              64%
Debt securities                     20% - 40%        31%              34%
Fixed income and cash               0% - 15%          4%               2%
                                                --------         --------
Total                                               100%             100%
                                                ========         ========
</Table>

     Information about the expected benefit payments for the Company's defined
benefit plans is as follows (in thousands):

<Table>
<Caption>
           FISCAL YEAR ENDING MARCH 31,
           -------------------------------------
           <S>                       <C>     <C>
           2007                      $   526
           2008                          545
           2009                          568
           2010                          605
           2011                          615
           Thereafter                  3,693
</Table>

Other Plans
     The Company also contributes to several multi-employer pension plans for
certain employees covered under collective bargaining agreements. Pension
contributions to these multi-employer plans were $0.5 million, $0.6 million and
$0.4 million for the years ended March 31, 2006, 2005 and 2004, respectively.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Leases
     The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease expense was approximately $13.6 million, $12.4
million and $10.4 million for the years ended March 31, 2006, 2005 and 2004,
respectively. Future minimum lease payments under non-cancelable operating
leases are as follows (in thousands):

<Table>
<Caption>
           FISCAL YEAR ENDING MARCH 31,
           --------------------------------------
           <S>                       <C>      <C>
           2007                      $ 12,395
           2008                        10,671
           2009                         8,690
           2010                         6,376
           2011                         3,724
           Thereafter                  15,783
</Table>

Letters of Credit
     As of March 31, 2006, the Company had outstanding letters of credit of $6.0
million. The letters of credit are issued to insurance companies and lessors.
The letters of credit typically secure the rights to payment to certain third
parties in accordance with specified terms and conditions.

                                       F-22
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Environmental and Labor 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 ("USEPA"), 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 USEPA
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.

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

     Because CERCLA can be imposed retroactively on shipments that occurred many
years ago, and because USEPA and state agencies are still discovering sites that
present problems to public heath or the environment, the Company can provide no
assurance that it will not become liable in the future for significant costs
associated with any such investigations 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 ("CTDEP") 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.

                                       F-23
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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.

     In a letter dated July 13, 2005, MTLM-Connecticut and the Company received
notification from Schiavone of his demand seeking indemnification (including the
advance of all costs, charges and expenses incurred by Schiavone in connection
with his defense) from MTLM-Connecticut and the Company to those claims made
against Schiavone in the action brought by CTDEP. Schiavone's demand refers to
his employment agreement and to the certificate of incorporation of
MTLM-Connecticut, which provide for indemnification against claims by reason of
his being or having been a director, officer, employee, or agent of
MTLM-Connecticut, or serving or having served at the request of MTLM-Connecticut
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, or other enterprise to the fullest extent permitted by
applicable law.

     The Company has engaged in settlement discussions with Joseph A. Schiavone
Corp., Schiavone and CTDEP 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 implement a CTDEP
approved characterization plan. The Company cannot provide assurances that it
will be able to reach an acceptable settlement of this matter with the other
parties.

     On April 29, 1998, Metal Management Midwest, Inc. ("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 (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 prior owner 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 the
prior owner will have sufficient resources to fund any indemnifiable claims to
which the Company may be entitled.

     On September 22, 2005 and September 23, 2005, CTDEP's Bureau of Water
Management and Bureau of Waste Management each issued a Notice of Violation
("NOV") to Metal Management Aerospace, Inc. ("MTLM-Aerospace"), a subsidiary of
the Company, for alleged violations at MTLM-Aerospace's facility, including,
among other things, (1) operation of a solid waste facility without the approval
of CTDEP; (2) failure to comply with certain environmental regulations regarding
the handling of used oil, the performance of certain hazardous waste
determinations, the disposal of PCBs and the discharge of oils and coolants; (3)
failure to comply with certain discharge reporting obligations; (4) creation of
certain potential environmental hazards; (5) inadequacy or improper maintenance
of certain pollution management devices, including erosion and sediment controls
and release detection for an underground diesel storage tank; (6) failure to
comply with a pollution prevention plan; and (7) failure to comply with certain
housekeeping and stormwater management requirements.

                                       F-24
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

     On October 21, 2005, MTLM-Aerospace submitted substantive responses to
CTDEP regarding the NOVs. At this time, the Company is unable to determine
MTLM-Aerospace's potential liability in connection with these NOVs. The Company
believes that MTLM-Aerospace has meritorious defenses to certain of the
allegations outlined in the NOVs. In addition, although the Company believes
that by virtue of certain consent orders, Connecticut Transfer Act obligations,
and lease/transactional documents executed by the lessor and former owner,
certain environmental liabilities noted in the NOVs will be the responsibility
of the lessor and former owner, there can be no assurance that the lessor and
former owner will have sufficient resources to fund any or all of such
liabilities.

     On November 24, 2005, the Occupational Safety & Health Agency ("OSHA")
commenced an investigation into a recent accident at the Company's Newark
facility that involved an employee fatality. A one count citation was issued to
the Newark facility, which included a $10 thousand penalty. The citation has
been accepted and the penalty was paid in May 2006.

     On December 30, 2005, MTLM-Aerospace received two citations from OSHA. The
citations resulted from inspections of MTLM-Aerospace's facility during the
third quarter of fiscal 2006. MTLM-Aerospace's contest of those citations was
settled through an Informal Settlement Agreement completed January 23, 2006. As
part of this Informal Settlement Agreement, MTLM-Aerospace paid a penalty of
approximately $25 thousand and submitted various abatement certifications in
response to certain alleged violations. Only one action item from the Informal
Settlement Agreement has yet to be completed. Specifically, MTLM-Aerospace is
undertaking the revision of its preventive maintenance and safety committee
program. MTLM-Aerospace has requested an extension until August 30, 2006 to
complete this effort. MTLM-Aerospace is waiting for OSHA's response to this
request. Since the preventative maintenance program will be completed using
existing internal resources, it is not expected that this effort will result in
significant out-of-pocket expense.

     On March 16, 2006, the USEPA issued a subpoena to both MTLM-Aerospace as
well as the current landlord and former operator requesting detailed information
with reference to alleged PCB contamination at MTLM-Aerospace's facility. The
responses to the subpoena were submitted to the USEPA on May 4, 2006. At this
time, the Company is unable to determine MTLM-Aerospace's potential liability in
connection with this subpoena. The Company believes that MTLM-Aerospace has
meritorious defenses to certain of the allegations outlined in the subpoena.
Although the Company believes that by virtue of certain lease/transactional
documents executed by the lessor and former operator, certain environmental
liabilities noted in the USEPA's subpoena will be the responsibility of the
lessor and former operator, there can be no assurance that the lessor and former
operator will have sufficient resources to fund any or all of such liabilities.

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 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 solely of 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

                                       F-25
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 $2.3 million to date.

     On July 15, 2005, the Company and MTLM-Midwest filed a complaint (the
"Complaint") against former officers and directors Albert A. Cozzi, Frank J.
Cozzi, and Gregory P. Cozzi (collectively, the "Defendants") in the Circuit
Court of Cook County Illinois, County Department, Chancery Division. The
Complaint seeks damages from Frank J. Cozzi and Gregory P. Cozzi for their
actions in designing, implementing, and maintaining cash payment practices in
MTLM-Midwest's accounts payable that violated Company policy and, potentially,
federal law. The Complaint also alleges that the Defendants breached the
non-competition and non-solicitation provisions of their respective separation
and release agreements by seeking to engage in business activities and seeking
to solicit suppliers, customers and service providers in competition with the
Company's business. The Complaint sought, among other things, monetary
compensation for the Company's actual losses and damages, and an injunction
restraining and enjoining the Defendants from breaching their respective
separation and release agreements. On October 21, 2005, Defendants moved to
dismiss the Complaint or in the alternative to compel arbitration and stay the
judicial proceedings. Defendants also filed a counterclaim seeking recovery of
unpaid employee severance payments of approximately $1.2 million. On March 8,
2006, Judge Mary Anne Mason of the Circuit Court of Cook County granted the
motion to compel arbitration and dismissed the lawsuit by virtue of an
arbitration provision contained in the separation and release agreements. The
parties now have filed for arbitration of the dispute before the American
Arbitration Association.

     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.

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, 2006 and 2005, there were 291,696 and
642,874 Series A Warrants outstanding, respectively. Any Series A Warrant that
is not exercised by June 29, 2006 will be cancelled and will expire worthless to
the holder of such Series A Warrant.

                                       F-26
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 13 - STOCK-BASED COMPENSATION PLANS

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 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:

<Table>
<Caption>
                                                            WEIGHTED
                                                            AVERAGE
                                             SHARES      EXERCISE PRICE
                                           ----------    --------------
<S>                                        <C>           <C>
Options outstanding at March 31, 2003         120,000      $    1.88
Granted                                       826,210          17.06
Exercised                                    (190,000)          6.75
Expired/forfeited                             (30,000)          3.88
                                           ----------      ---------
Options outstanding at March 31, 2004         726,210          17.80
Granted                                       135,000          18.22
Exercised                                    (210,000)          3.30
Expired/forfeited                                   0           0.00
                                           ----------      ---------
Options outstanding at March 31, 2005         651,210          22.56
Granted                                       120,000          23.00
Exercised                                           0           0.00
Expired/forfeited                                   0           0.00
                                           ----------      ---------
Options outstanding at March 31, 2006         771,210      $   22.63
                                           ==========      =========
Exercisable at March 31, 2006                 712,212      $   22.35
                                           ==========      =========
Exercisable at March 31, 2005                 539,211      $   21.79
                                           ==========      =========
Exercisable at March 31, 2004                 576,210      $   15.41
                                           ==========      =========
</Table>

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, 2006, 2005 and
2004, the per share weighted average fair value of restricted stock granted was
$20.70, $26.48 and $17.61, respectively. The Company recorded stock-based
compensation expense related to restricted stock of approximately $7.2 million,
$4.8 million and $1.0 million in the years ended March 31, 2006, 2005 and 2004,
respectively.

                                       F-27
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

<Table>
<Caption>
                                                            SHARES
                                                          ----------
<S>                                                       <C>
Restricted stock outstanding at March 31, 2003                     0
Granted                                                      560,188
Vested                                                       (41,160)
Cancelled                                                        (90)
                                                          ----------
Restricted stock outstanding at March 31, 2004               518,938
Granted                                                      181,732
Vested                                                      (131,412)
Cancelled                                                          0
                                                          ----------
Restricted stock outstanding at March 31, 2005               569,258
Granted                                                      220,081
Vested                                                      (246,793)
Cancelled                                                    (19,319)
                                                          ----------
Restricted stock outstanding at March 31, 2006               523,227
                                                          ==========
</Table>

     The scheduled vesting for outstanding restricted shares issued as of March
31, 2006 is as follows:

<Table>
<Caption>
                      FISCAL YEAR ENDING MARCH 31,
                      -------------------------------------
                      <S>                       <C>     <C>
                      2007                      258,776
                      2008                      252,602
                      2009                       11,849
                                                -------
                      Total                     523,227
                                                =======
</Table>

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-28
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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

<Table>
<Caption>
                                                            WEIGHTED
                                                            AVERAGE
                                            SHARES       EXERCISE PRICE
                                          -----------    --------------
<S>                                       <C>            <C>
Warrants outstanding at March 31, 2003      3,590,000     $      3.80
Granted                                             0            0.00
Exercised                                  (2,294,000)          (3.64)
Expired/forfeited                             (45,000)          (5.54)
                                          -----------     -----------
Warrants outstanding at March 31, 2004      1,251,000            4.04
Granted                                             0            0.00
Exercised                                  (1,024,000)           4.09
Expired/forfeited                                   0            0.00
                                          -----------     -----------
Warrants outstanding at March 31, 2005        227,000            3.80
Granted                                             0            0.00
Exercised                                    (202,000)           3.62
Expired/forfeited                                   0            0.00
                                          -----------     -----------
Warrants outstanding at March 31, 2006         25,000     $      5.18
                                          ===========     ===========
Exercisable at March 31, 2006                  25,000     $      5.18
                                          ===========     ===========
Exercisable at March 31, 2005                 227,000     $      3.80
                                          ===========     ===========
Exercisable at March 31, 2004               1,251,000     $      4.04
                                          ===========     ===========
</Table>

     The following table summarizes information about options and warrants
outstanding at March 31, 2006:

<Table>
<Caption>
                                                              OPTIONS/WARRANTS
                          OPTIONS/WARRANTS OUTSTANDING          EXERCISABLE
                       ----------------------------------   --------------------
                                    WEIGHTED
                                     AVERAGE     WEIGHTED               WEIGHTED
                                    REMAINING    AVERAGE                AVERAGE
                                   CONTRACTUAL   EXERCISE               EXERCISE
EXERCISE PRICES         SHARES     LIFE (YRS)     PRICE      SHARES      PRICE
---------------        ---------   -----------   --------   ---------   --------
<S>                    <C>         <C>           <C>        <C>         <C>
$1.87 - $17.55           196,210       4.33      $ 11.53      193,210   $ 11.48
$17.56 - $22.00          175,000       8.01      $ 18.50      155,334   $ 18.35
$22.01 - $28.00          275,000       6.19      $ 24.84      255,334   $ 24.73
$28.01 - $35.00          150,000       7.83      $ 35.00      133,334   $ 35.00
                       ---------                            ---------

                         796,210                              737,212
                       ---------                            ---------
                       ---------                            ---------
</Table>

Employee Stock Purchase Plan
     On October 1, 2005, the Metal Management, Inc. Employee Stock Purchase Plan
(the "ESPP") became effective and 1.0 million shares of the Company's common
stock were reserved for issuance. Eligible employees may purchase a limited
number of shares of the Company's common stock at a discount of 15% of the
lesser of the fair market value of the Company's common stock at the beginning
of an offering period or the end of an offering period. The ESPP has four
quarterly offering periods per year. For the year ended March 31, 2006, there
were 4,158 shares purchased at an average price of $19.77 per share.

     Pursuant to APB No. 25, no stock-based compensation costs are recognized as
the ESPP meets all the characteristics of a non-compensatory plan as defined in
APB No. 25. In fiscal 2007, the Company will recognize stock-based compensation
expense for the ESPP under the provisions of SFAS No. 123(R).

                                       F-29
<PAGE>
                             METAL MANAGEMENT, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

NOTE 14 - RELATED PARTY TRANSACTIONS

     On April 1, 2006, Norman R. Bobins joined the Company's Board of Directors.
Mr. Bobins is the President and Chief Executive Officer of LaSalle Bank National
Association ("LaSalle"). The Company conducts various business transactions with
LaSalle. LaSalle is the Agent under the Old Credit Agreement and New Credit
Agreement. In addition, the Company utilizes LaSalle for cash management and
transfer agent services.

NOTE 15 - SUBSEQUENT EVENTS

     On April 28, 2006, the Company sold its ownership interest in Southern (see
Note 2 - Equity Method Investments).

     On May 9, 2006, the Company entered into a $300 million secured five-year
revolving credit and letter of credit facility, with a maturity date of May 1,
2011 (See Note 8 - Long-term Debt).

     On May 16, 2006, the Company acquired substantially all of the assets of a
scrap metal recycling yard located in East Chicago, Indiana from OmniSource
Corporation. The acquisition was paid for using cash balances. The pro forma
effects of this acquisition are not significant to the Company's consolidated
financial statements.

NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<Table>
<Caption>
FISCAL 2006                                   JUNE 30      SEPT. 30     DEC. 31      MAR. 31
-----------                                   -------      --------     -------      -------
<S>                                          <C>          <C>          <C>          <C>
Net sales                                    $  381,634   $  378,301   $  395,090   $  434,101
Operating income                                  6,895       26,394       22,751       30,727
Net income                                        5,446       16,921       15,346       22,551
Basic earnings per share (a)                 $     0.22   $     0.69   $     0.63   $     0.90
Diluted earnings per share (a)               $     0.22   $     0.66   $     0.60   $     0.86
</Table>

<Table>
<Caption>
FISCAL 2005                                   JUNE 30      SEPT. 30     DEC. 31      MAR. 31
-----------                                   -------      --------     -------      -------
<S>                                          <C>          <C>          <C>          <C>
Net sales                                    $  367,176   $  425,007   $  447,553   $  462,222
Operating income                                 20,186       51,947       45,700       25,061
Net income                                       12,525       34,053       29,482       16,190
Basic earnings per share (a)                 $     0.55   $     1.48   $     1.26   $     0.68
Diluted earnings per share (a)               $     0.52   $     1.40   $     1.19   $     0.64
</Table>

-------------------------------------
(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.

                                       F-30
<PAGE>

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

<Table>
<Caption>
                                  BALANCE AT   CHARGED TO   CHARGED TO   DEDUCTIONS,   BALANCE AT
                                  BEGINNING    COSTS AND      OTHER        NET OF        END OF
                                  OF PERIOD     EXPENSES     ACCOUNTS    RECOVERIES      PERIOD
                                  ----------   ----------   ----------   -----------   ----------
<S>                               <C>          <C>          <C>          <C>           <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
      Year Ended March 31, 2004    $  1,003     $  1,186    $       0     $   (539)     $  1,650
      Year Ended March 31, 2005    $  1,650     $  1,426    $       0     $   (399)     $  2,677
      Year Ended March 31, 2006    $  2,677     $    378    $     203     $ (1,475)     $  1,783
TAX VALUATION ALLOWANCE:
      Year Ended March 31, 2004    $ 59,183     $    168    $ (57,835)    $      0      $  1,516
      Year Ended March 31, 2005    $  1,516     $      0    $    (176)    $      0      $  1,340
      Year Ended March 31, 2006    $  1,340     $    403    $     (85)    $      0      $  1,658
</Table>

                                       F-31