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

                                   FORM 10-K

<Table>
<C>        <S>
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
           FOR THE FISCAL YEAR ENDED MARCH 31, 2004


   [ ]     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 NO. 0-14836
                          ---------------------------
                             METAL MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      94-2835068
         (State or other jurisdiction                         (I.R.S. Employer
      of incorporation or organization)                    Identification Number)
</Table>

              500 NORTH DEARBORN ST., SUITE 405, CHICAGO, IL 60610
                    (Address of principal executive offices)

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

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

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          Common Stock, $.01 par value
               Series A Warrants (Expiration Date June 29, 2006)
                          ---------------------------
     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No  __

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

     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  __

     The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $207.2 million as of September 30, 2003, the last
business day of the registrant's most recently completed second fiscal quarter,
based on a closing stock price of $9.75 per share.

     As of May 3, 2004, the registrant had 23,476,114 shares of common stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

     We expect to file a definitive proxy statement no later than July 29, 2004.
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.
               FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2004
                               TABLE OF CONTENTS

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<Caption>
                                                                        PAGE
<S>       <C>                                                           <C>
                                   PART I

Item 1.   Business....................................................    1
Item 2.   Properties..................................................   14
Item 3.   Legal Proceedings...........................................   16
Item 4.   Submission of Matters to a Vote of Security Holders.........   17

                                  PART II

Item 5.   Market for the Registrant's Common Equity and Related
          Stockholder Matters.........................................   18
Item 6.   Selected Financial Data.....................................   19
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   21
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   35
Item 8.   Financial Statements and Supplementary Data.................   36
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   36
Item 9A.  Controls and Procedures.....................................   36

                                  PART III

Item 10.  Directors and Executive Officers of the Registrant..........   38
Item 11.  Executive Compensation......................................   38
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters..................   38
Item 13.  Certain Relationships and Related Transactions..............   38
Item 14.  Principal Accountant Fees and Services......................   38

                                  PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   39
          Signatures..................................................   40
          Exhibit Index...............................................   41
</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 the current expectations of Metal Management, Inc. (herein,
"Metal Management," the "Company," "we," "us," "our" or other similar terms)
regarding (i) our future profitability and liquidity and that of our
subsidiaries, (ii) the benefits to be derived from the execution of our industry
consolidation strategy and (iii) other future developments in our business or
the scrap metals recycling industry. 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; 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; expectations regarding pension expenses; the
expected impact of any market risks, such as interest rate risk, pension plan
risk, foreign currency risk, commodity price risks, and rates of return;
expectations regarding the implementation of financial accounting standards and
the impact of such implemented standards; assumptions used to test long-lived
assets including, but not limited to, goodwill, including expected operating
profit and cash flows from the use of assets and expected present value of cash
flows; projections regarding pension benefit obligations, including expected
returns on plan assets, and expected increase in compensation levels;
assumptions used to calculate the fair value of options, including expected term
and stock price volatility; our belief regarding our ability to compete; and our
assumptions and expectations regarding critical accounting policies. All such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. These risks,
uncertainties and other factors are discussed under the heading "Risk Factors"
in Part I, Item 1 of this report.

                                     PART I

ITEM 1. BUSINESS

OVERVIEW
     We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 13 states. We enjoy leadership
positions in many major metropolitan markets, including Birmingham, Chicago,
Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix, Salt Lake City,
Toledo and Tucson. We have a 28.5% equity ownership position in Southern
Recycling, L.L.C. ("Southern"), one of the largest scrap metals recyclers in the
Gulf Coast region. Our operations primarily involve the collection and
processing of ferrous and non-ferrous scrap metals. We collect industrial scrap
metal and obsolete scrap metal, process it into reusable forms and supply the
recycled metals to our customers, including electric-arc furnace mills,
integrated steel mills, foundries, secondary smelters and metal brokers. In
addition to buying, processing and selling ferrous and non-ferrous scrap metals,
we are periodically retained as demolition contractors in certain of our large
metropolitan markets in which we dismantle obsolete machinery, buildings and
other structures containing metal and, in the process, collect both the ferrous
and non-ferrous metals from these sources. At certain of our locations adjacent
to commercial waterways, we provide stevedoring services. We also operate a bus
dismantling business combined with a bus replacement parts business at our
Northeast operations.

     We believe that we provide one of the most comprehensive product offerings
of both ferrous and non-ferrous scrap metals. Our ferrous products primarily
include shredded, sheared, cold briquetted, bundled scrap metal, and other
purchased scrap metal, such as turnings, cast and broken furnace iron. We also
process non-ferrous 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.

                                        1
<PAGE>

     We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. In making acquisitions, we have focused on major
metropolitan markets where prime industrial and obsolete scrap metals
(automobiles, appliances and industrial equipment) are readily available and
from where we believe we can better serve our customer base. In pursuing this
strategy, we acquired certain large regional companies to serve as platforms
into which subsequent acquisitions would be integrated. We believe that through
the integration of our acquired businesses, we have enhanced our competitive
position and profitability of the operations because of broader distribution
channels, improved managerial and financial resources, enhanced purchasing power
and increased economies of scale.

RECENT DEVELOPMENTS
     Effective as of January 16, 2004, Albert A. Cozzi resigned as a director
and Chief Executive Officer of our company. Our Board of Directors appointed
Daniel W. Dienst as our new Chief Executive Officer. Mr. Dienst has been the
Chairman of the Board since April 1, 2003 and a director since June 2001.
Effective as of January 16, 2004, Frank J. Cozzi resigned as a Vice President of
our company and as President of Metal Management Midwest, Inc. ("MTLM-Midwest").
Our Board of Directors appointed Harold "Skip" Rouster as a Vice President of
our company and President of MTLM-Midwest. Effective with his new appointments,
Mr. Rouster resigned from our Board of Directors on which he had served since
June 2001. In addition to Albert A. Cozzi and Frank J. Cozzi, one other officer
of MTLM-Midwest resigned and five other employees were terminated in a
management realignment implemented during January 2004 principally involving our
Midwest operations. We recognized a one-time expense of approximately $6.2
million related to this realignment during the year ended March 31, 2004
("fiscal 2004") primarily in connection with aggregate severance payments,
benefits, and expense associated with the acceleration of vesting of restricted
stock held by Mr. Albert A. Cozzi.

     On January 16, 2004, Gerald E. Morris was appointed to our Board of
Directors to fill the vacancy created by Mr. Rouster's resignation. Mr. Morris
is President and Chief Executive Officer of Intalite International N.V., a
multinational company engaged in manufacturing metal ceilings for commercial
buildings. On March 25, 2004, Robert Lewon was appointed to our Board of
Directors. Mr. Lewon has over 40 years of experience in the scrap metal industry
and has served as an executive of scrap metal companies, including President of
Simsmetal USA Corp. Mr. Morris and Mr. Lewon have been appointed to both the
Audit Committee and Compensation Committee of the Board of Directors, replacing
Messrs. Dienst and Rouster. Mr. Morris was also appointed the Chairman of the
Compensation Committee.

     On March 8, 2004, our Board of Directors approved a two-for-one stock split
in the form of a stock dividend. The stock dividend was paid on April 20, 2004
to shareholders of record on April 5, 2004. All share and per-share amounts for
the Reorganized Company have been retroactively restated throughout this annual
report on Form 10-K to reflect the stock split.

INTEGRATION AND BRANDING INITIATIVES
     We continue to integrate our operations to take advantage of operational
efficiencies and cost savings. By way of example, we have consolidated many of
our administrative efforts including sales and marketing, accounting,
transportation, procurement of services and employee benefits. Through our
integration efforts, we are also standardizing the reporting systems and
business practices of our operations so that we are better able to evaluate
operating performance. Although we believe that cost savings from the
elimination of redundant functions has been an important benefit of
consolidation, we hope to realize additional cost benefits from the
implementation of our best management practices across the country.
Additionally, a component of our integration strategies includes the development
of national account and branding programs. We believe that our strategy of
creating brand awareness for the Metal Management name will help create
awareness among our customers of the size and geographic scope of our operations
and the breadth of our product offerings. We believe this will benefit us as our
customers consolidate their supplier base to create purchasing efficiencies.

                                        2
<PAGE>

INDUSTRY
     According to the U.S. Geological Survey, an estimated 69 million metric
tons of steel was recycled in steel mills and foundries in 2003. Although
significant consolidation has occurred during the past several years, the scrap
metals industry remains highly fragmented. The Institute of Scrap Recycling
Industries ("ISRI"), the trade association of the scrap metal and recycling
industry, represents approximately 1,200 member companies who operate nearly
3,000 facilities 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.

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. By way of example, in calendar
2001, there was an increase in scrap metal imports by the U.S. from Europe and
reduced export opportunities for scrap metals from the U.S. as a result of a
strong U.S. dollar. In calendar 2002 and 2003, scrap metal export opportunities
increased as a result of, among other factors, the weakening U.S. dollar.
Additionally, demand for processed ferrous scrap metal is highly dependent on
the overall strength of the domestic steel industry, particularly production
utilizing EAF technology. Weak industry conditions caused declines in both
pricing and demand for ferrous scrap from mid-1998 to 2001. As a consequence of
improved levels of steel production in the U.S. coupled with robust export
markets for ferrous scrap, our ferrous metals business has improved since 2002.
However, ferrous prices can fluctuate greatly from month to month affecting our
results.

     Much of the growth in the scrap metals industry in recent years has
occurred as a result of the proliferation of mini-mill steel producers which
utilize EAF technology. According to the U.S. Geological Survey, EAF production
as a percentage of total domestic steel production has increased from 38% in
1991 to 49% in 2003. In addition to growth in EAF production over the past two
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. This consolidation has also contributed to strong demand for
ferrous scrap during fiscal 2004. 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 has been fueled, in part, by
the historically low prices of prepared ferrous scrap and faster conversion time
to process, which gives EAF producers a product cost advantage over integrated
steel producers. Integrated steel producers operate blast furnaces, the primary
raw material feedstock of which are coke and iron ore. If the price of ferrous
scrap metals were to significantly increase, EAF operators may evaluate
alternatives to prepared steel scrap, such as pre-reduced iron pellets or pig
iron, to supply their EAF operations. We do not believe that these alternatives
to ferrous scrap will replace ferrous scrap in EAF operations, but may be used
as a supplemental feedstock thereby allowing EAF operators to 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 are typically located on
or

                                        3
<PAGE>

near key modes of transportation, such as railways and waterways which allows
for competitive access to ship processed scrap to consumers.

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

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

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

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

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

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

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

     Shredding.  Obsolete consumer scrap such as automobiles, home appliances
and other consumer goods, as well as certain light gauge industrial scrap, is
processed in our shredding 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
mini-mills. We recover non-ferrous metals as a by-product from

                                        4
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the shredding process that we refer to as Zorba. Zorba is generally sold through
monthly auctions to customers that sort and recover intrinsic metals from the
Zorba. The non-metallic by-product of the shredding operations, referred to as
"shredder fluff," is disposed of in third-party landfills.

     Shearing or Cutting.  Pieces of oversized ferrous scrap, such as obsolete
steel girders and used drill pipes, which are too large for other processing,
are cut with hand torches, crane-mounted alligator shears or stationary
guillotine shears. After being reduced to specific lengths or sizes, the scrap
is then sold to those customers who can accommodate larger materials, such as
EAF 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 mini-mills, integrated steel makers and foundries, and brokers whom
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, as well as quality and grade of the
scrap. In many cases, our selling price also includes the cost of transportation
to the end-user. We believe our profitability may be enhanced by the broad
product line that we offer to our customers. Our ferrous scrap sales are
accomplished through a monthly sales program managed nationally. We believe that
our coordinated ferrous marketing initiatives will allow us to be a uniquely
capable supplier of ferrous scrap as we are able to fill larger quantity orders
due to our ability to procure large amounts of raw materials.

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

     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-

                                        5
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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. During chopping operations, the
plastic casing of the wire is separated from the copper using a variety of
techniques. Wire chopping activities have been significantly curtailed in the
last two years. In addition to wire chopping, we process copper scrap by baling
and other repacking methods to meet customer specifications.

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

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

EMPLOYEES
     At March 31, 2004, we employed approximately 1,500 employees, of whom
approximately 780 were covered by collective bargaining agreements. A strike or
work stoppage could impact our ability to operate if we were unable to negotiate
new agreements with our represented employees. Also, our profitability could be
adversely affected if increased costs associated with any future labor contracts
are not recoverable through productivity improvements, price increases or cost
reductions. We believe that we have good relations with our employees.

CAPITAL EXPENDITURES
     The scrap metals recycling business is capital intensive. In fiscal 2004,
we invested approximately $15 million for replacement of equipment and expansion
of our operations. We currently expect to spend between $14 million and $15
million in capital expenditures, including those to improve environmental
control systems, during the year ending March 31, 2005 ("fiscal 2005").

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

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

EXPORT SALES
     In fiscal 2004 and the year ended March 31, 2003 ("fiscal 2003"), export
sales represented approximately 29% and 14% of consolidated net sales,
respectively. At March 31, 2004, receivables from foreign customers represented
approximately 10% of consolidated accounts receivable. There were no sales to
any single country that exceeded 10% of our consolidated net sales in fiscal
2004 or fiscal 2003.

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

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

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

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.

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

     In furtherance of an agreement reached between us and the holders of a
significant percentage of our pre-petition debt prior to the initiation of the
Chapter 11 proceedings, we filed a plan of reorganization (the "Plan") pursuant
to Chapter 11 of the Bankruptcy Code on May 4, 2001. The Plan was confirmed by
the Bankruptcy Court and became effective on June 29, 2001 (the "Effective
Date"). On September 17, 2002, a Final Decree Motion was approved by the
Bankruptcy Court, which officially closed our Chapter 11 proceedings. In the
Chapter 11 proceedings, virtually all suppliers of scrap metals were paid their
pre-petition claims as critical vendors. Additionally, the Plan provided for the
conversion of approximately $211.9 million of unsecured debt and other
liabilities into common stock, which strengthened our capitalization.

                                        7
<PAGE>

     In connection with our emergence from bankruptcy, we reflected the terms of
the Plan in our audited consolidated financial statements by adopting
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Under fresh-start reporting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values. For accounting purposes, the fresh-start adjustments were
recorded in our audited consolidated financial statements as of June 30, 2001.
As used in this report, the term "Predecessor Company" refers to our operations
for periods prior to the Effective Date, while the term "Reorganized Company"
refers to our operations for periods after the Effective Date.

AVAILABLE INFORMATION
     We make available, free of charge, through our website, www.mtlm.com, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements, and amendments to those reports as soon as
reasonably practicable after they have been electronically filed with the
Securities and Exchange Commission. We also make available on our website our
audit committee charter, our compensation committee charter, our Business Ethics
Policy and Code of Conduct and our Code of Ethics for the CEO and senior
financial officers. 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>

                                  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.

OUR INDEBTEDNESS CONTAINS COVENANTS THAT RESTRICT OUR ABILITY TO ENGAGE IN
CERTAIN TRANSACTIONS.
     Our $130 million credit agreement due July 1, 2007 (the "Credit Agreement")
contains covenants that, among other things, restrict our ability to:

- incur additional indebtedness;
- pay dividends;
- 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 certain other matters customarily restricted in such agreements.

     Our Credit Agreement requires us to satisfy specified financial covenants,
including a minimum fixed charge coverage ratio of 1.25 to 1.00 and a maximum
leverage ratio of 3.00 to 1.00, through December 31, 2004. After December 31,
2004, the maximum leverage ratio is 2.25 to 1.00. Both ratios are tested for the
twelve-month period ending each fiscal quarter.

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

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

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

     During fiscal 2001, our business was adversely affected by slowing
economies, a strong U.S. dollar and bankruptcies of many U.S. steel producers.
The slowing domestic economy caused operating rates at U.S. steel producers to
decline. Consequently, our unit sales declined and precluded us from generating
sufficient margins to cover our fixed charges, causing substantial losses. Our
fixed charges during fiscal 2001
                                        9
<PAGE>

were substantially higher due to our highly leveraged capital structure at that
time. The strong dollar not only precluded us from exporting scrap metal, but
also served as a mechanism that attracted scrap metal to the U.S. from other
countries which further depressed prices for our products in the U.S.

     During fiscal 2001 and most of fiscal 2002, our business was negatively
affected by our bankruptcy, the recession in the U.S. and a slowdown in
industrial production. In January 2002, our ferrous business began to
demonstrate a recovery and has remained strong through fiscal 2004. Ferrous
markets improved as a result of increased demand from domestic and international
steel mills. However, the slowdown in industrial production has impacted our
purchases of industrial scrap which also limits sales and profitability.

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

- general economic conditions;
- labor costs;
- competition;
- financial condition of our major customers;
- the availability of imports;
- the availability and relative pricing of scrap metal substitutes and coke and
  iron ore;
- import duties and ocean freight costs; and
- tariffs and currency exchange rates.

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

OUR OPERATIONS PRESENT SIGNIFICANT RISK OF INJURY OR DEATH.
     Because of the heavy industrial activities conducted at our facilities,
there exists a risk of injury or death to our employees or other visitors of our
operations, notwithstanding the safety precautions we take. During the period
from fiscal 2001 through fiscal 2004, two accidental employee deaths occurred in
transportation related accidents and a number of other serious accidental
injuries have occurred at our facilities. Our operations are subject to
regulation by federal, state and local agencies responsible for employee health
and safety, including the Occupational Safety and Health Administration
("OSHA"). We, or our Predecessor Company, have been fined in regard to some of
these incidents. While we have in place policies to minimize such risks, we may
nevertheless be unable to avoid material liabilities for any employee death or
injury that may occur in the future and these types of incidents may have a
material adverse effect on our financial condition.

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

THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT TEAM OR A SIGNIFICANT NUMBER OF
OUR MANAGERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
     Our operations depend heavily on the skills and efforts of our senior
management team, including Daniel W. Dienst, our Chairman and Chief Executive
Officer, Michael W. Tryon, our President and Chief Operating Officer, 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

                                        10
<PAGE>

regard to day-to-day operations. While we have employment agreements with
Messrs. Dienst, Tryon, and Larry and certain other members of our management
team, we may nevertheless be unable to retain the services of any of those
individuals. The loss of any member of our senior management team or a
significant number of managers could have a material adverse effect on our
operations.

THE PROFITABILITY OF OUR SCRAP RECYCLING OPERATIONS DEPENDS, IN PART, ON THE
AVAILABILITY OF AN ADEQUATE SOURCE OF SUPPLY.
     We procure our scrap inventory from numerous sources. These suppliers
generally are not bound by long-term contracts and have no obligation to sell
scrap metals to us. In periods of low industry prices, suppliers may elect to
hold scrap waiting for higher prices. If a substantial number of scrap suppliers
cease selling scrap metals to us, we would be unable to recycle metals at
desired levels and our results of operations or financial condition could be
materially and adversely affected. In addition, the slowdown of industrial
production in the U.S. has reduced the supply of industrial grades of scrap
metal to our industry.

THE CONCENTRATION OF OUR CUSTOMERS AND OUR EXPOSURE TO CREDIT RISK COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
     Sales to our ten largest customers represented approximately 44% of
consolidated net sales in fiscal 2004. Accounts receivable balances from these
customers comprised approximately 52% of consolidated accounts receivable at
March 31, 2004. Sales in fiscal 2004 to The David J. Joseph Company represented
approximately 19% of consolidated net sales. The loss of any of our significant
customers or our inability to collect accounts receivables could negatively
impact our revenues and profitability.

THE LOSS OF EXPORT SALES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS OR
FINANCIAL CONDITION.
     Export sales accounted for 29% of consolidated net sales in fiscal 2004.
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), and
collection risks in some cases (such as Mexican steel mills where we extend open
credit for other than vessel shipments). Any of these factors could result in
lower export sales which may materially adversely affect our results of
operations and financial condition.

POTENTIAL CREDIT LOSSES FROM OUR SIGNIFICANT CUSTOMERS COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
     In connection with the sale of our products, we generally do not require
collateral as security for customer receivables. Some of our subsidiaries have
significant balances owing from customers that operate in cyclical industries
and under leveraged conditions that may impair the collectibility of those
receivables. Failure to collect a significant portion of amounts due on those
receivables could have a material adverse effect on our results of operations or
financial condition.

     During the weakening cycle for the steel business evident in fiscal 2001,
there were bankruptcies filed by many large steel producers. In particular, our
results of operations were adversely affected by the bankruptcies of LTV Steel
Company, Inc., Northwestern Steel and Wire Company and Special Metals
Corporation.

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. Although these alternatives have not been
a major factor in the industry to date, we cannot assure you that the use of
alternatives to scrap metals may not proliferate in the future if the prices for
scrap metals rise or if the levels of available unprepared ferrous scrap
decrease.

                                        11
<PAGE>

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. Due to declining equity
markets that have caused negative returns in our pension plan assets, and the
low interest rate environment, our defined benefit pension plans are underfunded
by approximately $4.0 million at March 31, 2004. As a result, we will have to
make additional contributions in the foreseeable future until our defined
benefit pension plans are funded in accordance with the Employee Retirement
Income Security Act ("ERISA") guidelines. This will negatively impact our cash
flow and results of operations.

OUR OPERATIONS ARE SUBJECT TO STRINGENT REGULATIONS, PARTICULARLY UNDER
APPLICABLE ENVIRONMENTAL LAWS.
     We are subject to comprehensive local, state, federal and international
statutory and regulatory environmental requirements relating to, among others:

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

     We believe that we and our subsidiaries 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 our subsidiaries and 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 or our
subsidiaries 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 our
subsidiaries or us.

     Environmental statutes and regulations have changed rapidly in recent years
by requiring greater and more expensive protective measures, and it is possible
that we will be subject to even more stringent environmental standards in the
future. For example, in many states there is the potential for regulation and or
legislation relating to mercury contaminants. Automobile hulks that are
purchased and processed by our industry, including us, may contain mercury
switches. We cannot estimate what legislation and or regulation will evolve, or
the effects, if any, on our business relating to mercury switches. For these
reasons and others, we cannot predict future capital expenditures for pollution
control equipment, remediation, or other initiatives that may be required with
accuracy. However, we expect that environmental standards will become
increasingly more stringent and that the expenditures necessary to comply with
those heightened standards will correspondingly increase.

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

                                        12
<PAGE>

     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 not material in fiscal 2004 or prior years nor are they
currently expected to be significant in fiscal 2005. However, for the reasons
explained above, there can be no assurance that this will continue to be the
case in the future.

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

     There are risks associated with certain by-products of our operations.  Our
scrap metals recycling operations produce significant amounts of wastes that we
pay to have treated or discarded. For example, certain of our subsidiaries
operate shredders for which the primary feedstock is automobile hulks and
obsolete household appliances. Approximately 20% of the weight of an automobile
hulk consists of material, referred to as automobile shredder residue ("ASR")
which remains after the segregation of ferrous and saleable non-ferrous metals.
State and federal environmental regulations require that we test ASR to
determine if it is classified as hazardous waste before disposing of it off-site
in permitted landfills. Our other waste streams are subject to similar
requirements. Additionally, we employ significant source control programs to
ensure to the fullest extent possible that contaminants do not enter our source
stream. We can give no assurance, however, that such contaminants will be
successfully removed from our source streams and resultant recycling by-
products. As a result, our waste streams may, from time to time, be classified
as a hazardous 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
("EPA"), state agencies or third parties that the subsidiary has been identified
as potentially responsible for the cost of investigation and cleanup of
landfills or other sites where the subsidiary's material was shipped. In most
cases, many other parties are also named as potentially responsible parties. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"
or "Superfund") enables EPA and state agencies to recover from owners,
operators, generators and transporters the cost of investigation and cleanup of
sites which pose serious threats to the environment or public health. In certain
circumstances, a potentially responsible party can be held jointly and severally
liable for the cost of cleanup. In other cases, a party who is liable may only
be liable for a divisible share. Liability can be imposed even if the party
shipped materials in a lawful manner at the time of shipment and the liability
for investigation and cleanup costs can be significant, particularly in cases
where joint and several liability may be imposed.

     Recent amendments to CERCLA have limited the exposure of scrap metal
recyclers for sales of certain recyclable material under certain circumstances.
However, the recycling defense is subject to a number of exceptions.

     Because CERCLA can be imposed retroactively on shipments that occurred many
years ago, and because EPA and state agencies are still discovering sites that
present problems to public heath or the
                                        13
<PAGE>

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

ITEM 2. PROPERTIES

     Our facilities generally are comprised of:

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

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

     The following table sets forth information regarding our principal
properties:

<Table>
<Caption>
                                                                                   APPROXIMATE   LEASED/
                   LOCATION                                OPERATIONS              SQUARE FEET    OWNED
                   --------                                ----------              -----------   -------
<S>                                             <C>                                <C>           <C>
Metal Management, Inc.
  500 N. Dearborn St., Chicago, IL............  Corporate Headquarters               21,000      Leased
  750 Lexington Ave., New York, NY............  Corporate Office                     2,100       Leased

Metal Management Aerospace, Inc.
  500 Flatbush Ave., Hartford, CT.............  Office/Processing                  1,481,040     Leased

Metal Management Alabama, Inc.
  2020 Vanderbilt Rd., Birmingham, AL.........  Office/Shear/Granulator            1,150,073      Owned

Metal Management Arizona, L.L.C.
  3640 S. 35th Ave., Phoenix, AZ..............  Office/Shear/Mega-Shredder/Baler   1,121,670     Leased
  1525 W. Miracle Mile, Tucson, AZ............  Office/Shredder/Shear               513,569       Owned

Metal Management Connecticut, Inc.
  234 Universal Dr., North Haven, CT..........  Office/Shredder                    1,089,000      Owned

Metal Management Indiana, Inc.
  3601 Canal St., East Chicago, IN............  Maintenance/Balers(2)/Shear         588,784       Owned

Metal Management Memphis, L.L.C.
  540 Weakley St., Memphis, TN................  Office/Maintenance                  178,596       Owned
  526 Weakley St., Memphis, TN................  Baler/Shear/Shredder                768,616       Owned
  1270 N. Seventh St., Memphis, TN............  Warehouse                           351,399       Owned
</Table>

                                        14
<PAGE>

<Table>
<Caption>
                                                                                   APPROXIMATE   LEASED/
                   LOCATION                                OPERATIONS              SQUARE FEET    OWNED
                   --------                                ----------              -----------   -------
<S>                                             <C>                                <C>           <C>
Metal Management Midwest, Inc.
  2305 S. Paulina St., Chicago, IL............  Maintenance/Shredder                392,040       Owned
  2500 S. Paulina St., Chicago, IL............  Office/Warehouse/Shear              168,255       Owned
  2425 S. Wood St., Chicago, IL...............  Office/Warehouse/Baler              103,226       Owned
  2451 S. Wood St., Chicago, IL...............  Office/Maintenance                  178,596       Owned
  350 N. Artesian Ave., Chicago, IL...........  Office/Maintenance/Shredder         348,480       Owned
  1509 W. Cortland St., Chicago, IL...........  Office/Baler                        162,540       Owned
  1831 N. Elston Ave., Chicago, IL............  Warehouse                            35,695       Owned
  26th and Paulina Streets, Chicago, IL.......  Office/Maintenance/Baler/Crusher    323,848       Owned
  9331 S. Ewing Ave., Chicago, IL.............  Office/Maintenance/Shredder         293,087       Owned
  3200 E. 96th St., Chicago, IL...............  Office/Maintenance/Eddy Current     364,969       Owned
                                                Separation System
  3151 S. California Ave., Chicago, IL........  Office/Maintenance/Shredder         513,500      Leased
  1000 N. Washington, Kankakee, IL............  Office/Maintenance/Warehouse        217,800       Owned
  564 N. Entrance Ave., Kankakee, IL..........  Processing                          206,910       Owned
  320 Railroad St., Joliet, IL................  Feeder Yard/Stevedoring              43,760      Leased
  12701 S. Doty Ave., Chicago, IL.............  Shear/Iron Breaking                 784,080      Leased

Metal Management Mississippi, L.L.C.
  120-121 Apache Dr., Jackson, MS.............  Office/Processing                    74,052       Owned

Metal Management New Haven, Inc.
  808 Washington Ave., New Haven, CT..........  Office/Shear/Warehouse              177,850      Leased

Metal Management Northeast, Inc.
  Foot of Hawkins St., Newark, NJ.............  Office/Baler/Shear                  382,846       Owned
  252-254 Doremus Ave., Newark, NJ............  Shredder/Processing                 384,000       Owned
  Port of Newark, Newark, NJ..................  Barge & Ship                        839,414      Leased
                                                Terminal/Stevedoring
  303 Doremus Ave., Newark, NJ................  Bus Dismantling                     270,100      Leased

Metal Management Ohio, Inc.
  Rte. 281 East, Defiance, OH.................  Office/Briquetting/Shear/Baler     3,267,000      Owned
  2535 Hill Ave., Toledo, OH..................  Office/Processing                   122,000       Owned
  4431 W. 130th St., Cleveland, OH............  Office/Iron Breaking/Shear/Baler   2,178,000     Leased

Metal Management Pittsburgh, Inc.
  2045 Lincoln Blvd, Elizabeth, PA............  Office/Processing/Warehouse         423,054       Owned
  77 E. Railroad St., Monongahela, PA.........  Office/Warehouse/Baler/Shear        174,240       Owned

Metal Management Stainless & Alloy, Inc.
  6660 S. Nashville Ave., Bedford Park, IL....  Office/Warehouse/Baler              304,223       Owned

Metal Management West, Inc.
  5601 York St., Denver, CO...................  Office/Shredder                     392,040       Owned
  3260 W. 500 South St., Salt Lake City, UT...  Office/Shredder                     435,600       Owned
  2690 East Las Vegas St., Colorado Springs,
    CO........................................  Feeder Yard                         522,720       Owned

Proler Southwest Inc.
  90 Hirsch Rd., Houston, TX..................  Office/Warehouse/Processing         378,972       Owned
  15-21 Japhet, Houston, TX...................  Terminal/Shear                     1,960,200      Owned
  1102 Navigation Blvd, Freeport, TX..........  Feeder Yard                         352,400      Leased
</Table>

                                        15
<PAGE>

     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 results of operations
or financial condition. We are involved in the litigation as described below.

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

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

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

Department of Justice Subpoena
     In January 2003, we received a subpoena requesting that we provide
documents to a grand jury that is investigating scrap metal purchasing practices
in the four state region of Ohio, Illinois, Indiana and Michigan. We are fully
cooperating with the subpoena and the grand jury's investigation. To date, we
have incurred approximately $0.5 million of legal fees associated with
responding to the subpoena. We are not able at this preliminary stage to
determine future legal costs or other costs to be incurred by us in responding
to such subpoena or other impact to us of such investigation.

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 have 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
                                        16
<PAGE>

voluntarily disclosed our concerns regarding such cash payments to the U.S.
Department of Justice. The Board of Directors has appointed a special committee,
consisting of all of our independent directors, to conduct an investigation of
these activities. We are cooperating with the U.S. Department of Justice. We
have implemented policies to eliminate such cash payments to industrial
customers. During fiscal 2004, such cash payments to industrial customers
represented approximately 0.7% of our consolidated ferrous and non-ferrous yard
shipments. The fines and penalties under applicable statutes contemplate
qualitative as well as quantitative factors that are not readily assessable at
this stage of the investigation, but could be material. We are not able to
predict at this time the outcome of any actions by the U.S. Department of
Justice or other governmental authorities or their effect on us, if any, and
accordingly, we have not recorded any amounts in the financial statements.

ENVIRONMENTAL MATTERS
     During the period from September 2002 to the present, the Arizona
Department of Environmental Quality ("ADEQ") issued five Notices of Violations
("NOVs") to our subsidiary Metal Management Arizona, L.L.C. ("MTLM-Arizona") for
alleged violations at MTLM-Arizona's Tucson and Phoenix facilities including:
(i) not developing and submitting a "Solid Waste Facility Site Plan"; (ii)
placing ASR on a surface that does not meet Arizona's permeability
specifications; (iii) alleged failure to follow ADEQ protocol for sampling and
analysis of waste from the shredding of motor vehicles at the Phoenix facility;
and (iv) use of excavated soil to stabilize railroad tracks adjacent to the
Phoenix facility. On September 5, 2003, MTLM-Arizona was notified that ADEQ had
referred the outstanding NOV issues to the Arizona Attorney General. Two of the
original five NOVs have now been closed, and MTLM-Arizona is cooperating fully
with ADEQ and the Arizona Attorney General's office with respect to the
remaining issues. At this preliminary stage, we cannot predict MTLM-Arizona's
potential liability, if any, in connection with the NOVs or any required
remediation.

     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 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, we cannot
predict MTLM-Midwest's potential liability, if any, in connection with such
lawsuit or any required remediation. We believe that we have meritorious
defenses to certain of the claims outlined in the Notice and MTLM-Midwest
intends to vigorously defend itself against any claims ultimately asserted by
the Village of Riverdale. In addition, although we believe that we would be
entitled to indemnification from the sellers of 138 Scrap for some or all of the
obligations that may be imposed on MTLM-Midwest in connection with this matter
under the agreement governing its purchase of the operating assets of 138 Scrap,
we cannot provide assurances that any of the sellers will have sufficient
resources to fund any indemnifiable claims to which we may be entitled.

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

     No matters were submitted to our shareholders during the fourth quarter of
fiscal 2004.

                                        17
<PAGE>

                                    PART II

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

     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." From
November 19, 2001 to March 6, 2003, our common stock traded on the OTC Bulletin
Board under the symbol "MLMG." The following table sets forth the reported high
and low bid information for our common stock for the periods indicated.

<Table>
<Caption>
                                                           HIGH     LOW
                                                           ----     ---
<S>                                                       <C>      <C>
FISCAL YEAR ENDED MARCH 31, 2004
Fourth Quarter                                            $22.15   $16.13
Third Quarter                                              18.50    10.25
Second Quarter                                              9.75     8.84
First Quarter                                               8.90     3.75

FISCAL YEAR ENDED MARCH 31, 2003
Fourth Quarter                                            $ 4.02   $ 1.98
Third Quarter                                               2.03     1.68
Second Quarter                                              2.08     1.53
First Quarter                                               2.03     0.75
</Table>

Stock split
     On March 8, 2004, our Board of Directors approved a two-for-one stock split
in the form of a stock dividend. The stock dividend was paid on April 20, 2004
to shareholders of record on April 5, 2004. All share and per-share amounts for
the Reorganized Company have been retroactively restated throughout this annual
report on Form 10-K to reflect the stock split.

Holders
     As of May 3, 2004, we had 1,319 registered shareholders based on our
transfer agent's records. On May 3, 2004, the closing price per share of our
common stock as reported on the Nasdaq National Market System was $14.45 per
share.

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

Unregistered sales of common stock
     During fiscal 2004, we sold 2,294,000 shares of our common stock pursuant
to exercise of warrants held by our employees and directors. There were 65
exercise transactions in fiscal 2004 and the average exercise price for each
transaction was $3.64 per share. We received proceeds of $8,352,000 from these
sales and used the proceeds to repay borrowings outstanding under our Credit
Agreement. The sales are exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended, as the grant of warrants, and the
issuance of shares of common stock upon exercise of such warrants, were made to
a limited number of our employees and directors without public solicitation.

                                        18
<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 reporting in connection with our emergence from
bankruptcy. Under fresh-start reporting, a new reporting entity is deemed to be
created and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values. For accounting purposes, the fresh-start
adjustments were recorded in our consolidated financial statements as of June
30, 2001. Since fresh-start reporting materially affects the comparability of
the amounts previously recorded in our Predecessor Company's consolidated
financial statements, a black line separates the post-emergence financial data
from the pre-emergence financial data. All share and per share amounts for the
Reorganized Company have been restated to reflect the April 20, 2004 two-for-one
stock split.

<Table>
<Caption>
                                               PREDECESSOR COMPANY         |          REORGANIZED COMPANY
                                       ----------------------------------- | ----------------------------------
(in thousands, except per share data)                           THREE      |   NINE
                                           YEARS ENDED         MONTHS      |  MONTHS
                                            MARCH 31,           ENDED      |   ENDED      YEARS ENDED MARCH 31,
                                           -----------        JUNE 30,     | MARCH 31,    ---------------------
                                         2000       2001        2001       |   2002         2003        2004
STATEMENT OF OPERATIONS DATA:            ----       ----      --------     | ---------      ----        ----
<S>                                    <C>        <C>         <C>          | <C>          <C>        <C>
Net sales                              $915,140   $ 766,591   $ 166,268    | $464,795     $770,009   $1,083,413
Gross profit                            109,985      61,874      17,052    |   55,615      105,141      160,413
General and administrative expenses      55,021      56,312      11,686    |   34,237       50,509       59,991
Depreciation and amortization            27,167      23,341       4,718    |   13,673       17,533       18,193
Goodwill impairment charge (a)                -     280,132           -    |        -            -            -
Stock-based compensation expense              -           -           -    |        -           35          972
Non-cash and non-recurring expense                                         |
  (income) (b)                            5,014       6,399       1,941    |    3,944         (695)       6,198
Operating income (loss)                  22,783    (304,310)     (1,293)   |    3,761       37,759       75,059
Interest expense                        (38,043)    (34,159)     (5,169)   |   (9,450)     (11,129)      (6,925)
Reorganization items (c)                      -      15,632    (135,364)   |      457            -            -
Income (loss) before cumulative                                            |
  effect of change in accounting                                           |
  principle (d)                         (12,294)   (365,322)    128,957    |   (6,083)      20,501       51,389
Gain on sale of discontinued                                               |
  operations,                                                              |
  net of tax                                376           -           -    |        -            -            -
Cumulative effect of change in                                             |
  accounting principle                        -           -        (358)   |        -            -            -
Preferred stock dividends (e)             2,021         295           -    |        -            -            -
Net income (loss)                      $(13,939)  $(365,617)  $ 128,599    | $ (6,083)    $ 20,501   $   51,389
                                                                           |
Income (loss) before cumulative                                            |
  effect of change in accounting                                           |
  principle per share:                                                     |
  Basic                                $  (0.26)  $   (6.18)  $    2.09    | $  (0.30)    $   1.01   $     2.42
  Diluted                              $  (0.26)  $   (6.18)  $    2.09    | $  (0.30)    $   0.99   $     2.27
                                                                           |
Cash dividends per common share        $   0.00   $    0.00   $    0.00    | $   0.00     $   0.00   $     0.00
                                                                           |
Weighted average shares outstanding      54,333      59,131      61,731    |   20,239       20,323       21,243
Weighted average diluted shares                                            |
  outstanding                            54,333      59,131      61,731    |   20,239       20,741       22,653
</Table>

                                        19
<PAGE>

<Table>
<Caption>
                               PREDECESSOR COMPANY   |             REORGANIZED COMPANY
                               --------------------  |  -----------------------------------------
(IN THOUSANDS)                      MARCH 31,        |                       MARCH 31,
                               --------------------  |  JUNE 30,   ------------------------------
                                 2000       2001     |    2001       2002       2003       2004
                                 ----       ----     |  --------     ----       ----       ----
<S>                            <C>        <C>        |  <C>        <C>        <C>        <C>
BALANCE SHEET DATA:                                  |
Working capital                $140,433   $  77,072  |  $ 54,694   $ 52,474   $ (9,691)  $ 80,740
Total assets                    710,980     284,792  |   289,518    257,108    248,651    406,416
Liabilities subject to                               |
  compromise                          -     220,234  |         -          -          -          -
Total debt (including current                        |
  maturities)(f)                384,710     152,977  |   148,435    133,960     89,610     44,297
Convertible preferred stock       6,277       5,915  |         -          -          -          -
Common stockholders' equity                          |
  (deficit)                     215,857    (149,172) |    65,000     59,487     78,282    202,839
</Table>

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

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

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

<Table>
<Caption>
                                                 PREDECESSOR COMPANY     |    REORGANIZED COMPANY
                                              -------------------------- | --------------------------
                                                                 THREE   |   NINE
                                                YEARS ENDED      MONTHS  |  MONTHS      YEARS ENDED
                                                 MARCH 31,       ENDED   |   ENDED       MARCH 31,
                                              ---------------   JUNE 30, | MARCH 31,   --------------
                                               2000     2001      2001   |   2002      2003     2004
                                               ----     ----    -------- | ---------   ----     ----
<S>                                           <C>      <C>      <C>      | <C>         <C>     <C>
Impairment of long-lived and other assets     $ (210)  $5,828    $1,941  |  $3,944     $(695)  $    0
Severance, facility closure charges and                                  |
  other                                        5,224      571         0  |       0         0    6,198
                                              ------   ------    ------  |  ------     -----   ------
                                              $5,014   $6,399    $1,941  |  $3,944     $(695)  $6,198
                                              ======   ======    ======  |  ======     =====   ======
</Table>

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

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

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

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

                                        20
<PAGE>

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

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

     The purpose of the following discussion is to facilitate the understanding
and assessment of significant changes and trends related to our results of
operations and financial condition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto
included in Part IV, Item 15 of this report.

OUR BUSINESS
     We are one of the largest full-service metals recyclers in the United
States, with recycling facilities located in 13 states. We enjoy leadership
positions in many major metropolitan markets, including Birmingham, Chicago,
Cleveland, Denver, Hartford, Houston, Memphis, Newark, Phoenix, Salt Lake City,
Toledo and Tucson. We have a 28.5% equity ownership position in Southern
Recycling, L.L.C. ("Southern"), one of the largest scrap metals recyclers in the
Gulf Coast region. Our operations primarily involve the collection and
processing of ferrous and non-ferrous scrap metals. We collect industrial scrap
metal and obsolete scrap metal, process it into reusable forms and supply the
recycled metals to our customers, including electric-arc furnace mills,
integrated steel mills, foundries, secondary smelters and metal brokers. In
addition to buying, processing and selling ferrous and non-ferrous scrap metals,
we are periodically retained as demolition contractors in certain of our large
metropolitan markets in which we dismantle obsolete machinery, buildings and
other structures containing metal and, in the process, collect both the ferrous
and non-ferrous metals from these sources. At certain of our locations adjacent
to commercial waterways, we provide stevedoring services. We also operate a bus
dismantling business combined with a bus replacement parts business at our
Northeast operations.

     We believe that we provide one of the most comprehensive product offerings
of both ferrous and non-ferrous scrap metals. Our ferrous products primarily
include shredded, sheared, cold briquetted 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.

     We have achieved a leading position in the metals recycling industry
primarily by implementing a national strategy of completing and integrating
regional acquisitions. In making acquisitions, we have focused on major
metropolitan markets where prime industrial and obsolete scrap metals
(automobiles, appliances and industrial equipment) are readily available and
from where we believe we can better serve our customer base. In pursuing this
strategy, we acquired certain large regional companies to serve as platforms
into which subsequent acquisitions would be integrated. We believe that through
the integration of our acquired businesses, we have enhanced our competitive
position and profitability of the operations because of broader distribution
channels, improved managerial and financial resources, enhanced purchasing power
and increased economies of scale.

CHAPTER 11 FILING AND EMERGENCE
     On November 20, 2000, we filed voluntary petitions under Chapter 11 of the
U.S. Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy

                                        21
<PAGE>

Court"). From November 20, 2000 to June 29, 2001, we operated our businesses as
debtors-in-possession. These bankruptcy proceedings are referred to herein as
the "Chapter 11 proceedings."

     On May 4, 2001, we filed a plan of reorganization (the "Plan") pursuant to
Chapter 11 of the Bankruptcy Code. The Plan was confirmed by the Bankruptcy
Court and became effective on June 29, 2001 (the "Effective Date"). On September
17, 2002, a Final Decree Motion was approved by the Bankruptcy Court, which
officially closed our Chapter 11 proceedings. In the Chapter 11 proceedings,
virtually all suppliers of scrap metals were paid their pre-petition claims as
critical vendors. Additionally, the Plan provided for the conversion of
approximately $211.9 million of unsecured debt and other liabilities into common
stock, which strengthened our capitalization.

     In connection with our emergence from bankruptcy, we reflected the terms of
the Plan in our audited consolidated financial statements by adopting
fresh-start reporting in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Under fresh-start reporting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values. For accounting purposes, the fresh-start adjustments were
recorded in our audited consolidated financial statements as of June 30, 2001.
As used in this report, the term "Predecessor Company" refers to our operations
for periods prior to the Effective Date, while the term "Reorganized Company"
refers to our operations for periods after the Effective Date.

CRITICAL ACCOUNTING POLICIES
     Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of our financial statements requires the use of
estimates and judgments that affect the reported amounts and related disclosures
of commitments and contingencies. We rely on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances to make judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ materially from these estimates.

     We believe the following critical accounting policies, among others, affect
the more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Revenue recognition
     Our primary source of revenue is from the sale of processed ferrous and
non-ferrous scrap metals. We also generate revenue from the brokering of scrap
metals or from services performed, including but not limited to tolling,
stevedoring and dismantling. Revenues from processed ferrous and non-ferrous
scrap metal sales are recognized when title passes to the customer. Revenues
relating to brokered sales are recognized upon receipt of the materials by the
customer. Revenues from services are recognized as the service is performed.
Sales adjustments related to price and weight differences and allowances for
uncollectible receivables are accrued against revenues as incurred.

Accounts receivable and allowance for uncollectible accounts receivable
     Accounts receivable consist primarily of amounts due from customers from
product and brokered sales. The allowance for uncollectible accounts receivable
totaled $1.7 million and $1.0 million at March 31, 2004 and 2003, 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.

     As indicated in the section entitled "Risk Factors - Potential credit
losses from our significant customers could adversely affect our results of
operations or financial condition," general weakness in the steel and metals
sectors during the period from 1998 to 2001 previously led to bankruptcy filings
by many of our customers which caused us to recognize additional allowances for
uncollectible accounts receivable. While we believe our allowance for
uncollectible accounts is adequate, changes in economic conditions or any
weakness in the steel and metals industry could adversely impact our future
earnings.

                                        22
<PAGE>

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

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

     Effective June 30, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which
requires that goodwill be reviewed at least annually for impairment based on the
fair value method. At March 31, 2004, we determined, based on current industry
and other market information, that no impairment existed.

Self-insured reserves
     We are self-insured for medical claims for most of our employees. Since
April 1, 2003, we have also been self-insured for workers' compensation claims
that involve a loss of less than $250,000 per claim. Our exposure to claims is
protected by stop-loss insurance policies. We record a reserve for reported but
unpaid claims and the estimated cost of incurred but not reported ("IBNR")
claims. IBNR reserves are based on either a lag estimate (for medical claims) or
on actuarial assumptions (for workers' compensation claims).

Pension plans
     We sponsor three defined benefit pension plans for employees at certain of
our subsidiaries. Pension benefits are based on formulas that reflect the
employees' years of service and compensation during their employment period. We
recognized pension expense of $0.5 million and $0.1 million in fiscal 2004 and
2003, respectively. We currently estimate that pension expense will be $0.4
million in fiscal 2005. Pension expense is determined using certain assumptions
as required by SFAS No. 87, "Employers' Accounting for Pensions." These
assumptions include the long-term rate of return on plan assets, discount rate
and rate of compensation increases. Actual results will often differ from
actuarial assumptions because of economic and other factors.

     We used a discount rate of 6.75% to compute pension expense in fiscal 2004.
The discount rate that we used reflects the rates of high-quality debt
instruments that would provide the future cash flows necessary to pay benefits
when they come due. A decrease in the discount rate of 25 basis points, from
6.75% to 6.50%, while holding all other assumptions constant, would have
resulted in an increase in our pension expense of approximately $30,000 in
fiscal 2004. We have reduced our discount rate to 6.25% at March 31, 2004 to
reflect market interest rate reductions.

     We assumed that long-term returns on pension assets were 8.00% during
fiscal 2004. To determine the expected long-term rate of return on pension plan
assets, we consider the current and expected asset allocations, as well as
historical returns on plan assets. 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 $16,000 in fiscal 2004.

                                        23
<PAGE>

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

     We had previously recorded a full valuation allowance against the emergence
date net deferred tax assets, including net operating loss ("NOL")
carryforwards, due to the uncertainty regarding their ultimate realization.
During the three months ended December 31, 2003, we filed our tax return for the
year ended March 31, 2003, recorded the final effects of post and pre-emergence
tax positions and updated our forecasts of future operations. The updated
forecasts took into consideration current market conditions and the eight
consecutive quarters of profitable operations through December 2003. Based on
these factors, we reversed most of the valuation allowance recorded against the
emergence date net deferred tax assets because we now believe it is more likely
than not that these deferred tax assets will 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 accrue reserves 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.

RESULTS OF OPERATIONS
     During fiscal 2004, we acquired one scrap metals recycling business in
November 2003. During fiscal 2003, we acquired one scrap metals recycling
business in October 2002. The impact of both of these acquisitions was not
material to our results of operations. In fiscal 2002, we did not acquire any
scrap metals recycling businesses so there was no corresponding effect to our
results of operations in that period. While we may acquire scrap metals
recycling businesses in the future, we are not able to predict the effect any
such acquisition could have on our consolidated results of operations.

                                        24
<PAGE>

FISCAL 2004 COMPARED TO FISCAL 2003

SALES
     Consolidated net sales for fiscal 2004 and for fiscal 2003 in broad product
categories were as follows ($ in millions):

<Table>
<Caption>
                                                 FISCAL 2004                 FISCAL 2003
                                          --------------------------   ------------------------
COMMODITY                                             NET                         NET
(WEIGHT IN THOUSANDS)                     WEIGHT     SALES       %     WEIGHT    SALES      %
----------------------------------------  ------     -----       -     ------    -----      -
<S>                                       <C>       <C>        <C>     <C>       <C>      <C>
Ferrous metals (tons)                       4,403   $  766.7    70.8     4,137   $492.7    64.0
Non-ferrous metals (lbs.)                 424,494      254.7    23.5   442,234    205.5    26.7
Brokerage-ferrous (tons)                      304       42.5     3.9       454     54.8     7.1
Brokerage-nonferrous (lbs.)                 4,506        2.0     0.2    10,688      4.2     0.5
Other                                                   17.5     1.6               12.8     1.7
                                                    --------   -----             ------   -----
                                                    $1,083.4   100.0             $770.0   100.0
                                                    ========   =====             ======   =====
</Table>

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

Ferrous sales
     Ferrous sales increased by $274.0 million (55.6%) to $766.7 million in
fiscal 2004 compared to ferrous sales of $492.7 million in fiscal 2003. The
increase was attributable to higher average selling prices combined with an
increase in sales volumes. The average selling price for ferrous products was
approximately $174 per ton in fiscal 2004 which represents an increase of $55
per ton (46.2%) from fiscal 2003. The increase in selling prices for ferrous
scrap is evident in data published by the American Metal Market ("AMM").
According to AMM, the average price for #1 Heavy Melting Steel Scrap - Chicago
(which is a common indicator for ferrous scrap) was approximately $143 per ton
in fiscal 2004 compared to approximately $97 per ton in fiscal 2003.
Additionally, export prices for ferrous scrap increased in fiscal 2004 partly
due to higher ocean freight costs.

     Demand for our ferrous scrap continues to be strong albeit with lower
prices. International demand remains favorable for us due in part to the
weakening U.S. dollar. Consequently, U.S. scrap is more attractive to overseas
buyers and, in particular, we have seen strong demand from Turkey, Korea and
China during fiscal 2004. In recent months, our industry has experienced lower
demand from China. The strong international demand is evident in data released
by the U.S. Commerce Department, which shows that U.S. exports of ferrous scrap
for calendar 2003 were approximately 11.8 million tons, an increase of 20% from
calendar 2002. Domestic demand for scrap metal has been favorable despite
reduced levels of steel production because of tighter supplies of prompt
industrial grades of scrap metal. 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.

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

     Our non-ferrous operations have benefited from rising prices for aluminum,
copper and stainless steel (nickel base metal). The increase in non-ferrous
prices is evident in data published by the London Metals Exchange ("LME") and
COMEX. According to LME data, average prices for nickel and aluminum were 53%
and 10%, respectively, higher in fiscal 2004 compared to fiscal 2003. According
to COMEX data, average

                                        25
<PAGE>

prices for copper were 28% higher in fiscal 2004 compared to fiscal 2003.
However, the supply for non-ferrous metals continues to remain at levels that
are lower than prior years due to lower than average output from U.S. industrial
production, especially in the aerospace and telecommunications industries, which
has also caused a decrease in our sales volumes. Competition from China has
resulted in lower volumes of copper and aluminum wire being processed and sold
from our wire-chopping operation. As a result, we have significantly curtailed
our wire-chopping operation, choosing instead in many cases to sell unprocessed
copper and aluminum abroad.

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

Brokerage sales
     Brokerage ferrous sales decreased by $12.3 million (22.4%) to $42.5 million
in fiscal 2004 compared to brokerage ferrous sales of $54.8 million in fiscal
2003. The decrease was primarily a result of changes to our business in Ohio
that resulted in reduced sales to certain of our domestic brokerage customers.
The decrease in brokered ferrous volume was partially offset by an increase in
brokered ferrous sales price per ton. The average selling price for brokered
metals is significantly affected by the product mix, such as prompt industrial
grades versus obsolete grades, which can vary significantly between periods.
Prompt industrial grades of scrap metal are generally associated with higher
unit prices.

     Brokerage non-ferrous sales decreased by $2.2 million (52.4%) to $2.0
million in fiscal 2004 compared to brokerage non-ferrous sales of $4.2 million
in fiscal 2003. The decrease was due to volume declining by 6.2 million pounds
offset by an increase in the average selling price of $0.05 per pound. Margins
associated with brokered non-ferrous metals are narrow so variations in this
product category are not as significant to us as variations in other product
categories.

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

GROSS PROFIT
     Gross profit was $160.4 million (14.8% of sales) in fiscal 2004 compared to
gross profit of $105.1 million (13.7% of sales) in fiscal 2003. The improvement
in gross profit was due to higher material margins on both ferrous and
non-ferrous products sold offset in part by higher processing expenses.

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

GENERAL AND ADMINISTRATIVE EXPENSES
     General and administrative expenses were $60.0 million (5.5% of sales) in
fiscal 2004 compared to general and administrative expenses of $50.5 million
(6.6% of sales) in fiscal 2003. The increase results from higher compensation
expense, medical claims expense and professional fees.

     The increase in compensation expense results from accruals recorded in
connection with employee incentive compensation plans. The compensation plans
are generally measured as a function of return on net assets. Based on our
strong operating results, we recorded $11.2 million of expense in fiscal 2004 in
connection with the employee incentive compensation plans compared to $6.2
million of expense in fiscal 2003. Payments under the incentive compensation
plans were approved by the Compensation Committee of the Board of Directors.
                                        26
<PAGE>

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

DEPRECIATION AND AMORTIZATION
     Depreciation and amortization expense was $18.2 million (1.7% of sales) in
fiscal 2004 compared to depreciation and amortization expense of $17.5 million
(2.3% of sales) in fiscal 2003. The increase is due to depreciation expense
recorded on capital expenditures incurred since March 31, 2003.

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

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

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

INTEREST EXPENSE
     Interest expense was $6.9 million (0.6% of sales) in fiscal 2004 compared
to interest expense of $11.1 million (1.4% of sales) in fiscal 2003. The
decrease was a result of lower borrowings and interest rates. Our average
borrowings under our Credit Agreement were approximately $62.8 million in fiscal
2004 which was $26.2 million less than our average borrowings under our Credit
Agreement in fiscal 2003.

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

INTEREST AND OTHER INCOME (EXPENSE), NET
     The major components of this category are interest income and gains and
losses from sale of fixed assets. In fiscal 2004, we recognized losses from the
sale of fixed assets of $0.9 million. In fiscal 2003, we recognized $2.4 million
of gains from the sale of fixed assets. We sold two parcels of redundant real
estate which resulted in gains of $3.3 million. This was offset by losses on
sales and disposals of equipment of $0.9 million.

                                        27
<PAGE>

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

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

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

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

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

<Table>
<Caption>
                                                  FISCAL 2003                FISCAL 2002
                                            ------------------------   ------------------------
COMMODITY                                              NET                        NET
(WEIGHT IN THOUSANDS)                       WEIGHT    SALES      %     WEIGHT    SALES      %
-----------------------------------------   ------    -----      -     ------    -----      -
<S>                                         <C>       <C>      <C>     <C>       <C>      <C>
Ferrous metals (tons)                         4,137   $492.7    64.0     3,938   $374.4    59.3
Non-ferrous metals (lbs.)                   442,234    205.5    26.7   447,636    200.3    31.7
Brokerage-ferrous (tons)                        454     54.8     7.1       350     36.6     5.8
Brokerage-nonferrous (lbs.)                  10,688      4.2     0.5    17,083      6.2     1.0
Other                                             -     12.8     1.7         -     13.6     2.2
                                                      ------   -----             ------   -----
                                                      $770.0   100.0             $631.1   100.0
                                                      ======   =====             ======   =====
</Table>

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

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

     Demand and pricing for our ferrous scrap was strong both domestically and
internationally in fiscal 2003. International demand and pricing was higher due
to the weakening U.S. dollar (which makes U.S. scrap more attractive to overseas
buyers) and strong demand from China. Demand was also strong from Mexico which
is an important market for our facilities in Houston and Arizona. The strong
international demand in fiscal 2003

                                        28
<PAGE>

was evident in data released by the U.S. Commerce Department, which shows that
U.S. exports of ferrous scrap for calendar 2002 were approximately 9.9 million
tons, an increase of 20% from calendar 2001.

     Domestic demand and pricing were higher due to increased production by U.S.
steel mills attributable, in part, to benefits from Section 201 tariffs.
According to data published by the American Iron and Steel Institute, U.S. steel
mills operated at an average capacity utilization rate of 89.5% in calendar 2002
compared to 75.1% in calendar 2001. Prior to calendar 2002, the strong U.S.
dollar allowed U.S. steel mills to import ferrous scrap from Eastern European
countries at lower prices than for ferrous scrap generated domestically, thereby
adversely affecting our sales. With the decreased availability of Eastern
European scrap and the weakening U.S. dollar, U.S. steel mills purchased more of
their ferrous scrap domestically, which caused ferrous scrap prices to increase
in fiscal 2003.

     The increase in selling prices for ferrous scrap in fiscal 2003 was evident
in data published by the AMM. According to AMM, the average price for #1 Heavy
Melting Steel Scrap - Chicago was approximately $97 per ton in fiscal 2003
compared to $73 per ton in fiscal 2002.

Non-ferrous sales
     Non-ferrous sales increased by $5.2 million (2.6%) to $205.5 million in
fiscal 2003 compared to non-ferrous sales of $200.3 million in fiscal 2002. The
increase was due to higher average selling prices partially offset by lower
sales volumes. In fiscal 2003, non-ferrous sales volumes decreased by 5.4
million pounds and average selling price for non-ferrous products increased by
approximately $.01 per pound as compared to fiscal 2002. Fiscal 2002 included
sales from our former MacLeod operations in California, which were discontinued
in December 2001 and completely ceased operations during June 2002. Prior to its
shutdown, MacLeod sold approximately 46 million pounds of non-ferrous metals in
fiscal 2002.

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

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

Brokerage sales
     Brokerage ferrous sales increased by $18.2 million (49.7%) to $54.8 million
in fiscal 2003 compared to brokerage ferrous sales of $36.6 million in fiscal
2002. The increase was primarily a result of a $16 per ton increase in average
brokerage ferrous selling prices and a 104,000 ton increase in brokered ferrous
tons. In fiscal 2003, we expanded our brokerage business at certain operations
as a result of strong export demand for ferrous scrap. Demand from domestic
customers for obsolete scrap also increased during fiscal 2003. The average
selling price for brokered metals is significantly affected by the product mix,
such as prompt industrial grades versus obsolete grades, which can vary
significantly between periods. Prompt industrial grades of scrap metal are
generally associated with higher unit prices.

     Brokerage non-ferrous sales decreased by $2.0 million (32.2%) to $4.2
million in fiscal 2003 compared to brokerage non-ferrous sales of $6.2 million
in fiscal 2002. The decrease was due to volume declining by

                                        29
<PAGE>

6.4 million pounds offset by an increase in the average selling price of $0.03
per pound. Margins associated with brokered non-ferrous metals are narrow so
variations in this product category are not as significant to us as variations
in other product categories.

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

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

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

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

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

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

NON-CASH AND NON-RECURRING EXPENSE (INCOME)
     Non-cash and non-recurring expense was $5.9 million in fiscal 2002. We
recorded an impairment charge of $3.1 million related to the exit from our
former MacLeod operations and an impairment charge of $2.8 million related to
fixed assets to be sold or otherwise abandoned. The impairment charge for
MacLeod was based on an evaluation of the proceeds that we expected to generate
from the liquidation of the assets of MacLeod compared to our investment in
MacLeod. We completed our exit from MacLeod during fiscal 2003
                                        30
<PAGE>

and generated $0.7 million of proceeds more than we expected. As a result, we
recognized non-cash and non-recurring income of $0.7 million in fiscal 2003.

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

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

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

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

REORGANIZATION ITEMS
     In fiscal 2002, we recognized reorganization income of $145.7 million
related to the cancellation of debt in the Chapter 11 proceedings and incurred
reorganization costs of $10.8 million, which mainly represented professional
fees, liabilities for rejected contracts and settlements, fresh-start
adjustments and other expenses associated with the Chapter 11 proceedings (see
Note 3 to the consolidated financial statements included in Part IV, Item 15 of
this report).

INCOME TAXES
     In fiscal 2003, we recognized income tax expense of $12.5 million resulting
in an effective tax rate of 38.4%. The recognition of income tax expense results
from the utilization of Predecessor Company net operating loss carryforwards and
other deferred tax assets, which is not offset by a corresponding reversal of
the related valuation allowance. Valuation allowance reversals of the
Predecessor Company, under generally accepted accounting principles, are
recorded first as a reduction in goodwill and then as an increase to paid-in-
capital. The effective tax rate differs from the statutory rate primarily due to
the impact of state income taxes and the reversal of valuation allowances
recorded against the Reorganized Company's deferred tax assets.

CHANGE IN ACCOUNTING POLICY
     On April 1, 2001, we adopted SFAS No. 133, "Accounting for Derivatives and
Hedges" (as amended). The cumulative effect of adopting SFAS No. 133 resulted in
an after-tax decrease in net earnings of $0.4 million in fiscal 2002.

                                        31
<PAGE>

NET INCOME
     Net income was $20.5 million in fiscal 2003 compared to net income of
$122.5 million in fiscal 2002. Net income in fiscal 2002 was primarily a result
of a $145.7 million extraordinary gain associated with cancellation of
indebtedness in the Chapter 11 proceedings. Net income in fiscal 2003 reflects
significant improvement in our operations as a result of higher volumes of
ferrous scrap metals sold, greater metal margins, lower interest expense and
gains on sale of fixed assets.

FINANCIAL CONDITION
     We believe that our financial condition has strengthened during fiscal
2004. At March 31, 2004, our total indebtedness was $44.3 million, a decrease of
$45.3 million from March 31, 2003. Our primary source of working capital is
collections from customers supplemented by financing under our Credit Agreement.

Cash Flows
     In fiscal 2004, our operating activities generated net cash of $54.9
million compared to net cash generated of $46.3 million in fiscal 2003. Cash
generated by operating activities during fiscal 2004 was comprised of $88.5
million of cash generated from net income, adjusted for non-cash items, offset
by investments in working capital of $33.6 million. The working capital increase
was due to higher scrap prices that resulted in an $80.8 million increase in
accounts receivable and a $30.8 million increase in inventories offset by a
$71.4 million increase in accounts payable. The increase in accounts receivable
was due to higher sales during the three months ended March 31, 2004 ($369
million) compared to sales during the three months ended March 31, 2003 ($214
million). Inventories increased primarily due to higher per unit costs. Accounts
payable increased due to higher purchase prices for scrap metals and extended
terms offered by our suppliers. Due to the utilization of net operating loss
carryforwards, cash payments for federal and state income taxes were only $1.3
million in fiscal 2004.

     We used $15.6 million in net cash for investing activities in fiscal 2004
compared to net cash generated of $0.2 million in fiscal 2003. In fiscal 2004,
purchases of property and equipment were $15.0 million, while we generated $0.6
million of cash from the sale of redundant fixed assets. Capital expenditures
included $4.0 million for the purchase of land on which we operate a scrap metal
recycling facility in Houston, Texas and $4.1 million expended to complete the
installation of a "Mega" Shredder, that we currently own, in Phoenix, Arizona.
In addition, we purchased the scrap metal recycling assets of H. Bixon & Sons
for $1.1 million of cash including transaction costs.

     During fiscal 2004, we used $39.0 million of net cash for financing
activities compared to net cash used of $46.5 million in fiscal 2003. Cash
generated from operating activities, net of cash used in investing activities,
was used to reduce overall indebtedness by $45.3 million during fiscal 2004. In
addition, we paid $3.0 million of fees and expenses associated with our Credit
Agreement during this period. This was offset by $9.7 million of cash received
from the exercise of stock options and warrants.

Indebtedness
     On August 13, 2003, we entered into an amended and restated credit facility
(the "Credit Agreement") with Deutsche Bank Trust Company Americas, as agent for
the lenders thereunder. The Credit Agreement provides for maximum borrowings of
$130 million and expires on July 1, 2007. $110 million of the Credit Agreement
is available as a revolving loan and letter of credit facility and $20 million
as a term loan. The Credit Agreement is available to fund working capital needs
and for general corporate purposes.

     Borrowings under the Credit Agreement are subject to certain borrowing base
limitations based upon a formula equal to 85% of eligible accounts receivable,
the lesser of $45 million or 70% of eligible inventory, a fixed asset sublimit
of $7.7 million as of March 31, 2004, and a term loan of $20.0 million (the
"Term Loan"). The fixed asset sublimit amortizes by $2.5 million on a quarterly
basis and under certain other conditions. Upon the full amortization of the
fixed asset sublimit, the Term Loan will then amortize by $2.5 million on a
quarterly basis and under certain other conditions. A security interest in
substantially all of our assets and properties, including pledges of the capital
stock of our subsidiaries, has been granted to the agent for the lenders as
collateral against our obligations under the Credit Agreement. Pursuant to the
Credit Agreement, we pay a fee of .375% on the undrawn portion of the facility.

                                        32
<PAGE>

     Borrowings on all outstanding balances under the Credit Agreement (other
than the Term Loan) bear interest, at our option, either at the prime rate (as
specified by Deutsche Bank AG, New York Branch) plus a margin or LIBOR plus a
margin. The margin on prime rate loans range from 0.50% to 1.00% and the margin
on LIBOR loans range from 2.50% to 3.00%. The margin is based on our leverage
ratio (as defined in the Credit Agreement) for the preceding quarter. Based on
our current leverage ratio, we are borrowing at LIBOR plus 2.50%. Borrowings
under the Term Loan bear interest at LIBOR plus 6.00% (with a floor on LIBOR
equal to 2.50%).

     Under the Credit Agreement, we are required to satisfy specified financial
covenants, including a minimum fixed charge coverage ratio of 1.25 to 1.00 and a
maximum leverage ratio of 3.00 to 1.00, through December 31, 2004. After
December 31, 2004, the maximum leverage ratio is 2.25 to 1.00. Both ratios are
tested for the twelve-month period ending each fiscal quarter. The Credit
Agreement also provides for maximum capital expenditures of $16 million for the
twelve-month period ending each fiscal quarter.

     The Credit Agreement also contains restrictions which, among other things,
limit our ability to (i) incur additional indebtedness; (ii) pay dividends;
(iii) enter into transactions with affiliates; (iv) enter into certain asset
sales; (v) engage in certain acquisitions, investments, mergers and
consolidations; (vi) prepay certain other indebtedness; (vii) create liens and
encumbrances on our assets; and (viii) engage in other matters customarily
restricted in such agreements. We were in compliance with all financial
covenants contained in the Credit Agreement as of March 31, 2004. As of May 25,
2004, we had outstanding borrowings of approximately $47.4 million under the
Credit Agreement and undrawn availability of approximately $58.2 million.

     Our ability to meet financial ratios and tests in the future may be
affected by events beyond our control, including fluctuations in operating cash
flows and working capital. While we currently expect to be in compliance with
the covenants and satisfy the financial ratios and tests in the future, there
can be no assurance that we will meet such financial ratios and tests or that we
will be able to obtain future amendments or waivers to the Credit Agreement, if
so needed, to avoid a default. In the event of default, the lenders could elect
to not make loans to us and declare all amounts borrowed under the Credit
Agreement to be due and payable.

     The Credit Agreement was amended on February 10, 2004. The amendment
eliminated the requirement that all proceeds from the collection of customer
accounts be swept automatically to an account that reduced borrowings under the
Credit Agreement from and after the closing date of the Credit Agreement,
provided that we satisfy certain conditions as specified in the Credit
Agreement. Pursuant to the amendment, we now control all collections through our
lock-box accounts. As a result of the amendment, and the expectation that we
will satisfy the conditions specified in the Credit Agreement, we classify the
amounts outstanding under the Credit Agreement as a long-term obligation as of
March 31, 2004. The Credit Agreement, which was entered into on August 13, 2003,
matures on July 1, 2007 subject to the terms and conditions of the Credit
Agreement.

     Prior to the amendment, the Credit Agreement previously required us to
remit all collections received into our lock-box accounts into an account that
would automatically reduce the borrowings under the Credit Agreement. During
fiscal 2004, we determined that the Credit Agreement contains provisions that
are deemed to be subjective acceleration clauses which provide the lenders with
an ability to restrict future borrowings under the Credit Agreement. In
accordance with Emerging Issues Task Force ("EITF") Issue No. 95-22, "Balance
Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements
That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement,"
the existence of the lock-box arrangement and subjective acceleration clauses
requires the classification of the Credit Agreement as a current liability for
dates preceding the amendment. Our prior credit agreement, which was repaid in
its entirety on August 13, 2003, had similar lock-box arrangements and
subjective acceleration clauses. Accordingly, we have restated through
reclassification the March 31, 2003 balance sheet to properly classify the
amounts outstanding under that prior credit agreement as a current liability.
There were no other changes to the balance sheet and no changes to the results
of operations. The reclassification of amounts owing under the prior credit
agreement (which was repaid in August 2003) to a short-term liability at March
31, 2003 does not affect our operating results, cash flows or liquidity.

                                        33
<PAGE>

     On August 14, 2003, we 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, we 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 fiscal 2004. We funded the repurchase and redemption of
the Junior Secured Notes with availability under the Credit Agreement. The
Junior Secured Notes were cancelled following the redemption of the remaining
notes on September 18, 2003.

Future capital requirements
     We expect to fund our working capital needs, interest payments and capital
expenditures over the next twelve months with cash generated from operations,
supplemented by undrawn borrowing availability under our Credit Agreement. Our
future cash needs will be driven by working capital requirements, planned
capital expenditures and acquisition objectives, should attractive acquisition
opportunities present themselves. During fiscal 2004, we received $9.7 million
of proceeds from the exercise of stock options and warrants. We may also receive
additional cash in the future from the exercise of outstanding stock options and
warrants.

     Capital expenditures were approximately $15.0 million in fiscal 2004.
Capital expenditures are expected to be $14 to $15 million in fiscal 2005.

     In addition, due to favorable financing terms made available by equipment
manufacturing vendors, we have entered into operating leases for new equipment.
Since April 2002, we have entered into 49 operating leases for equipment which
would have cost approximately $12.9 million to purchase. These operating leases
are attractive to us since the implied interest rates are lower than interest
rates under our credit facilities. We expect to selectively use operating leases
for new material handling equipment or trucks required by our operations.

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

OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS

Off-balance sheet arrangements
     Other than operating leases, we do not have any significant off-balance
sheet arrangements that are likely to have a current or future effect on our
financial condition, result of operations or cash flows.

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

     The following table sets forth our known contractual obligations as of
March 31, 2004, 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  $44,297    $   471      $18,581      $25,183      $    62
Operating leases                    44,976      9,021       11,424        7,345       17,186
Other contractual obligations        2,185      1,548          565           72            0
                                   -------    -------      -------      -------      -------
Total contractual cash
  obligations                      $91,458    $11,040      $30,570      $32,600      $17,248
                                   =======    =======      =======      =======      =======
</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
ERISA. However, due to uncertainties regarding significant assumptions involved
in estimating future required contributions, such as pension plan benefit

                                        34
<PAGE>

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 2005. Our minimum required pension contributions for fiscal 2005
will be approximately $1.9 million.

     We also enter into letters of credit in the ordinary course of operating
and financing activities. As of May 3, 2004, we had outstanding letters of
credit of $4.4 million which expire in fiscal 2005.

     In connection with the management realignment implemented during January
2004 (principally involving our Midwest operations), we paid severance and other
expenses of approximately $4.0 million. The remaining severance and other
benefits to be paid is approximately $1.6 million, most of which is payable in
July 2005.

RECENT ACCOUNTING PRONOUNCEMENTS
     In January 2003, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"). In December 2003, the FASB issued FIN 46-R "Consolidation of
Variable interest Entities" ("FIN 46-R") (revised December 2003), which replaces
FIN 46. FIN 46-R incorporates certain modifications to FIN 46 adopted by the
FASB subsequent to the issuance of FIN 46, including modifications to the scope
of FIN 46. Additionally, FIN 46-R also incorporates much of the guidance
previously issued in the form of FASB Staff Positions. For all special purposes
entities ("SPEs") and variable interest entities ("VIEs") created prior to
February 1, 2003, public entities must apply either the provisions of FIN 46, or
early adoption of the provisions of FIN 46-R at the end of the first interim or
annual reporting period after December 15, 2003. The adoption of this
interpretation had no impact on our consolidated financial statements.

     In April 2003, the FASB issued Statement SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," to provide clarification on the financial accounting and reporting
of derivative instruments and hedging activities and requires that contracts
with similar characteristics be accounted for on a comparable basis. The
provisions of SFAS No. 149 are effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. The adoption of this statement had no impact on our consolidated financial
statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003 and to all other instruments that exist as of the
beginning of the first interim financial reporting period beginning after June
15, 2003. The adoption of this statement had no impact on our consolidated
financial statements.

     In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This revised statement
retains the requirements of the original SFAS No. 132 but requires additional
disclosures concerning the economic resources and obligations related to pension
plans and other postretirement benefits. This revised statement is effective for
fiscal years ending after December 15, 2003. We have revised our disclosures to
meet the requirements under this revised standard.

     In December 2003, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
supercedes SAB No. 101, "Revenue Recognition in Financial Statements." SAB No.
104 rescinds accounting guidance in SAB No. 101 related to multiple-element
revenue arrangements as this guidance has been superceded with the issuance of
EITF Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." The adoption of SAB No. 104 had no impact on 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.
                                        35
<PAGE>

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

Interest rate risk
     We are exposed to interest rate risk on our long-term fixed interest rate
indebtedness and on our floating rate borrowings. As of March 31, 2004, variable
rate borrowings mainly consisted of outstanding borrowings of $23.5 million
under our Credit Agreement. Borrowings on our Credit Agreement bear interest at
either the prime rate of interest plus a margin or LIBOR plus a margin. Any
increase in either base rate would lead to higher interest expense. We do not
have any interest rate swaps or caps in place which would mitigate our exposure
to fluctuations in the interest rate on this indebtedness. Based on our average
borrowings under our Credit Agreement in fiscal 2004, a hypothetical increase or
decrease in interest rates by 1% would increase or decrease interest expense on
our variable borrowings by approximately $0.6 million per year, with a
corresponding change in cash flows.

Foreign currency risk
     Although international sales accounted for 29% of our consolidated net
sales in fiscal 2004, 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 our Disclosure Controls and Internal Controls.
     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 controls evaluation was done
under the supervision and with the participation of management, including Daniel
W. Dienst, our Chairman of the Board and Chief Executive Officer ("CEO"), and
Robert C. Larry, our Executive Vice President, Finance and Chief Financial
Officer ("CFO"). Rules adopted by the Securities Exchange Commission ("SEC")
require that in this section of the annual report, we present the conclusions of
our CEO and CFO about the effectiveness of our disclosure controls based on and
as of the date of the controls evaluation.

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.

                                        36
<PAGE>

Disclosure Controls and Internal Controls.
     Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Exchange Act, such as this report, is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure.
Internal controls are procedures which are designed with the objective of
providing reasonable assurance that our transactions are properly authorized,
our assets are safeguarded against unauthorized or improper use and our
transactions are properly recorded and reported, all to permit the preparation
of our financial statements in conformity with generally accepted accounting
principles.

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 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.

Scope of the Controls Evaluation.
     The evaluation of our disclosure controls by our CEO and CFO included a
review of the controls' objectives and design, the controls' implementation by
the Company and the effect of the controls on the information generated for use
in this report. Based upon the controls evaluation, our CEO and our CFO have
concluded that, subject to the limitations noted above, our disclosure controls
and procedures are reasonably effective in enabling us to record, process,
summarize, and report information required to be included in our periodic SEC
filings within the required time period. 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. However, since the date of the
controls evaluation to the date of the filing of this report, the Company has
effected the changes in internal controls discussed below. During the first
quarter of fiscal 2005, the Company identified a material weakness in the design
of its system of internal accounting control that may have permitted employees
at certain company locations to circumvent federal and state laws relating to
the reporting of certain cash payments. The Company voluntarily reported these
findings to the U.S. Department of Justice in May 2004 and has implemented a
company-wide policy to eliminate cash transactions for the purchase of scrap
metals from industrial customers. The Company is cooperating with the U.S.
Department of Justice. The Company also identified weaknesses, which
collectively constitute a reportable condition, in the design and operation of
internal accounting controls over industrial account scrap metal procurement in
its Midwest operations relating to segregation of duties, approval of vendors,
monitoring of pricing adjustments and check signing procedures. New policies and
procedures have been implemented to address each of these weaknesses, including,
among other things, by transferring oversight responsibility and control over
the Company's industrial accounts payable function to the Company's finance
department.

                                        37
<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," "Section 16(a) Beneficial Ownership Reporting Compliance," and "Code
of Ethics" in our definitive proxy statement, which will be filed with the
Securities and Exchange Commission no later than July 29, 2004.

ITEM 11. EXECUTIVE COMPENSATION

     The information required under this item is incorporated by reference from
the section entitled "Executive Compensation," "Option Grants in the Last Fiscal
Year," and "Option Exercises and Fiscal Year-End Values" in our definitive proxy
statement, which will be filed with the Securities and Exchange Commission no
later than July 29, 2004.

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 section entitled "Ownership of the Capital Stock of the Company" in our
definitive proxy statement, which will be filed with the Securities and Exchange
Commission no later than July 29, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required under this item is incorporated by reference from
the section entitled "Certain Relationships and Related Transactions" in our
definitive proxy statement, which will be filed with the Securities and Exchange
Commission no later than July 29, 2004.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required under this item is incorporated by reference from
the section entitled "Proposal No. 2 - Ratification of the Appointment of
Independent Public Accountants" in our definitive proxy statement, which will be
filed with the Securities and Exchange Commission no later than July 29, 2004.

                                        38
<PAGE>

                                    PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

     (1) Financial Statements:

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

Consolidated Statements of Operations for the years ended
  March 31, 2004 and 2003, the nine months ended March 31,
  2002 (Reorganized Company), and the three months ended
  June 30, 2001 (Predecessor Company)                          F-3

Consolidated Balance Sheets at March 31, 2004 and 2003
  (Reorganized Company)                                        F-4

Consolidated Statements of Cash Flows for the years ended
  March 31, 2004 and 2003, the nine months ended March 31,
  2002 (Reorganized Company), and the three months ended
  June 30, 2001 (Predecessor Company)                          F-5

Consolidated Statements of Stockholders' Equity for the
  years ended March 31, 2004 and 2003, the nine months ended
  March 31, 2002 (Reorganized Company), and the three months
  ended June 30, 2001 (Predecessor Company)                    F-6

Notes to Consolidated Financial Statements                     F-7

(2) Financial Statement Schedules:

Schedule II - Valuation and Qualifying Accounts for the
  years ended March 31, 2004 and 2003, the nine months ended
  March 31, 2002 (Reorganized Company), and the three months
  ended June 30, 2001 (Predecessor Company)                   F-32
</Table>

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

     (3) Exhibits:

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

(b) Reports on Form 8-K:

     On January 20, 2004, we filed a report on Form 8-K relating to a press
release we issued on January 19, 2004 announcing a realignment in management,
including the appointments of Daniel W. Dienst as Chief Executive Officer,
Harold "Skip" Rouster as President of MTLM-Midwest and Gerald E. Morris as a
director.

     On March 10, 2004, we filed a report on Form 8-K relating to a press
release we issued on March 8, 2004 announcing that our Board of Directors
declared a two-for-one stock split in the form of a stock dividend, payable on
April 20, 2004 to shareholders of record as of April 5, 2004.

     On March 26, 2004, we filed a report on Form 8-K relating to a press
release we issued on March 25, 2004 announcing the appointment of Robert Lewon
to the Company's Board of Directors.

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

(d) Not applicable.

                                        39
<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, in Chicago, Illinois
on June 11, 2004.

                                          METAL MANAGEMENT, INC.

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

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 11, 2004.

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

          /s/ Daniel W. Dienst                    Chairman of the Board
--------------------------------------            and Chief Executive Officer
                Daniel W. Dienst                  (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/ Kevin P. McGuinness                 Director
--------------------------------------
          Kevin P. McGuinness

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

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

          /s/ Michael W. Tryon                    President and
--------------------------------------            Chief Operating Officer
                Michael W. Tryon
</Table>

                                        40
<PAGE>

                             METAL MANAGEMENT, INC.
                                 EXHIBIT INDEX

NUMBER AND DESCRIPTION OF EXHIBIT

<Table>
<Caption>

<S>    <C>
2.1    Disclosure Statement with respect to First Amended Joint
       Plan of Reorganization of Metal Management, Inc. and its
       Subsidiary Debtors, dated May 4, 2001 (incorporated by
       reference to Exhibit 2.1 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 2001).

3.1    Second Amended and Restated Certificate of Incorporation of
       the Company, as filed with the Secretary of State of the
       State of Delaware on June 29, 2001 (incorporated by
       reference to Exhibit 3.1 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 2001).

3.2    Amended and Restated By-Laws of the Company adopted as of
       April 29, 2003 (incorporated by reference to Exhibit 3.2 of
       the Company's Annual Report on Form 10-K for the year ended
       March 31, 2003).

4.1    Series A Warrant Agreement, dated June 29, 2001 by and among
       Metal Management, Inc. and LaSalle Bank National
       Association, as Warrant Agent (incorporated by reference to
       Exhibit 4.1 of the Company's Annual Report on Form 10-K for
       the year ended March 31, 2001).

4.2    Form of Series B Warrant Agreement (incorporated by
       reference to Exhibit 4.3 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 2001).

4.3    Form of Series C Warrant Agreement (incorporated by
       reference to Exhibit 4.4 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 2001).

4.4    Amended and Restated Credit Agreement, dated as of August
       13, 2003, among Metal Management, Inc. and Deutsche Bank
       Trust Company Americas (incorporated by reference to Exhibit
       4.1 of the Company's Current Report on Form 8-K dated August
       11, 2003).

4.5    Amendment No. 1 to Amended and Restated Credit Agreement,
       dated February 10, 2004 among Metal Management, Inc. and
       Deutsche Bank Trust Company Americas (incorporated by
       reference to Exhibit 4.1 of the Company's Quarterly Report
       on Form 10-Q for the quarter ended December 31, 2003).

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 April 1, 2000 between Michael W.
       Tryon and the Company (incorporated by reference to Exhibit
       10.15 of the Company Annual Report on Form 10-K for the year
       ended March 31, 2000).

10.4   Letter Agreement, dated June 7, 2001 and June 13, 2001
       between the Company and Michael W. Tryon reflecting certain
       modifications to the Employment Agreement of Michael W.
       Tryon (incorporated by reference to Exhibit 10.12 of the
       Company's Annual Report on Form 10-K for the year ended
       March 31, 2001).
</Table>

                                        41
<PAGE>

<Table>
<Caption>

<S>    <C>
10.5   Letter Agreement, dated April 21, 2003 between the Company
       and Michael W. Tryon reflecting certain modifications to the
       Employment Agreement of Michael W. Tryon (incorporated by
       reference to Exhibit 10.9 of the Company's Annual Report on
       Form 10-K for the year ended March 31, 2003).

10.6   Employment Agreement, dated July 1, 2001 between Robert C.
       Larry and the Company (incorporated by reference to Exhibit
       10.1 of the Company's Quarterly Report on Form 10-Q for the
       quarter ended September 30, 2002).

10.7   Confidentiality and Standstill Agreement dated September 8,
       2003 between the Company and European Metal Recycling Ltd.
       (incorporated by reference to Exhibit 10.1 of the Company's
       Current Report on Form 8-K dated September 8, 2003).

10.8   Employment Agreement, dated January 16, 2004 between Daniel
       W. Dienst and the Company.

10.9   Separation and Release Agreement, dated January 18, 2004
       between Albert A. Cozzi and the Company.

10.10  Separation and Release Agreement, dated January 18, 2004
       between Frank J. Cozzi and the Company.

10.11  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).

21.1   Subsidiaries of the Company.

23.1   Consent of Independent Accountants.

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 pursuant to 18 U.S.C.
       1350, as adopted pursuant to Section 906 of the
       Sarbanes-Oxley Act of 2002.

32.2   Certification of Robert C. Larry pursuant to 18 U.S.C. 1350,
       as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
       of 2002.
</Table>

                                        42
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 39 present fairly, in all material
respects, the financial position of Metal Management, Inc. and its subsidiaries
(the "Reorganized Company") at March 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the two years in the period ended
March 31, 2004 and the nine months ended March 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the Reorganized Company financial statement schedule
as of March 31, 2004, 2003 and 2002, and for each of the two years in the period
ended March 31, 2004 and the nine months ended March 31, 2002 listed in the
index under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
Reorganized Company consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Reorganized Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with 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
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

As discussed in Note 10, the consolidated balance sheet has been restated at
March 31, 2003 to classify borrowings under the Credit Agreement as a short-term
liability.

PricewaterhouseCoopers LLP
Chicago, Illinois
June 11, 2004

                                       F-1
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 39 present fairly, in all material
respects, the results of operations and cash flows of Metal Management, Inc. and
its subsidiaries (the "Predecessor Company") for the three months ended June 30,
2001 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the Predecessor Company
financial statement schedule for the three months ended June 30, 2001 listed in
the index under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
Predecessor Company consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Predecessor Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with 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
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

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

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

PricewaterhouseCoopers LLP
Chicago, Illinois
June 5, 2002

                                       F-2
<PAGE>

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

<Table>
<Caption>
                                                                                               | PREDECESSOR
                                                                   REORGANIZED COMPANY         |   COMPANY
                                                           ----------------------------------- | -----------
                                                                                       NINE    |    THREE
                                                                                      MONTHS   |   MONTHS
                                                           YEAR ENDED   YEAR ENDED     ENDED   |    ENDED
                                                           MARCH 31,    MARCH 31,    MARCH 31, |  JUNE 30,
                                                              2004         2003        2002    |    2001
                                                           ----------   ----------   --------- |  ---------
<S>                                                        <C>          <C>          <C>       |  <C>
NET SALES                                                  $1,083,413    $770,009    $464,795  |  $ 166,268
Cost of sales                                                923,000      664,868     409,180  |    149,216
                                                           ----------    --------    --------  |  ---------
Gross profit                                                 160,413      105,141      55,615  |     17,052
                                                                                               |
Operating expenses:                                                                            |
  General and administrative                                  59,991       50,509      34,237  |     11,686
  Depreciation and amortization                               18,193       17,533      13,673  |      4,718
  Stock-based compensation expense                               972           35           0  |          0
  Non-cash and non-recurring expense (income) (Note 5)         6,198         (695)      3,944  |      1,941
                                                           ----------    --------    --------  |  ---------
Total operating expenses                                      85,354       67,382      51,854  |     18,345
                                                           ----------    --------    --------  |  ---------
Operating income (loss)                                       75,059       37,759       3,761  |     (1,293)
Income (loss) from joint ventures (Note 4)                     8,300        3,113        (224) |        (56)
Interest expense                                              (6,925)     (11,129)     (9,450) |     (5,169)
Interest and other income (expense), net                        (902)       2,934         287  |        111
(Loss) gain on debt extinguishment                              (363)         607           0  |          0
                                                           ----------    --------    --------  |  ---------
Income (loss) before reorganization items, income taxes                                        |
  and cumulative effect of change in accounting principle     75,169       33,284      (5,626) |     (6,407)
Reorganization items (Note 3)                                      0            0         457  |   (135,364)
                                                           ----------    --------    --------  |  ---------
Income (loss) before income taxes and cumulative effect                                        |
  of change in accounting principle                           75,169       33,284      (6,083) |    128,957
Provision for income taxes (Note 11)                          23,780       12,783           0  |          0
                                                           ----------    --------    --------  |  ---------
Income (loss) before cumulative effect of change in                                            |
  accounting principle                                        51,389       20,501      (6,083) |    128,957
  Cumulative effect of change in accounting principle                                          |
    (Note 2)                                                       0            0           0  |       (358)
                                                           ----------    --------    --------  |  ---------
NET INCOME (LOSS)                                          $  51,389     $ 20,501    $ (6,083) |  $ 128,599
                                                           ==========    ========    ========  |  =========
                                                                                               |
BASIC EARNINGS (LOSS) PER SHARE:                                                               |
  Income (loss) before cumulative effect of change in                                          |
    accounting principle                                   $    2.42     $   1.01    $  (0.30) |  $    2.09
  Cumulative effect of change in accounting principle           0.00         0.00        0.00  |      (0.01)
                                                           ----------    --------    --------  |  ---------
    Basic earnings (loss) per share                        $    2.42     $   1.01    $  (0.30) |  $    2.08
                                                           ==========    ========    ========  |  =========
                                                                                               |
DILUTED EARNINGS (LOSS) PER SHARE:                                                             |
  Income (loss) before cumulative effect of change in                                          |
    accounting principle                                   $    2.27     $   0.99    $  (0.30) |  $    2.09
  Cumulative effect of change in accounting principle           0.00         0.00        0.00  |      (0.01)
                                                           ----------    --------    --------  |  ---------
    Diluted earnings (loss) per share                      $    2.27     $   0.99    $  (0.30) |  $    2.08
                                                           ==========    ========    ========  |  =========
Weighted average common shares outstanding                    21,243       20,323      20,239  |     61,731
                                                           ==========    ========    ========  |  =========
Weighted average diluted common shares outstanding            22,653       20,741      20,239  |     61,731
                                                           ==========    ========    ========  |  =========
</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>
                                                               REORGANIZED COMPANY
                                                              ---------------------
                                                                    MARCH 31,
                                                              ---------------------
                                                                2004         2003
                                                                ----         ----
<S>                                                           <C>          <C>
                           ASSETS

Current assets:
  Cash and cash equivalents                                   $  1,155     $    869
  Accounts receivable, net                                     146,427       66,746
  Inventories (Note 7)                                          80,128       49,319
  Deferred income taxes (Note 11)                                4,201            0
  Prepaid expenses and other assets                              3,216        7,167
                                                              --------     --------
    TOTAL CURRENT ASSETS                                       235,127      124,101
Property and equipment, net (Note 8)                           114,708      114,684
Goodwill and other intangibles, net (Notes 1 and 9)              2,690        5,809
Deferred financing costs, net                                    3,001        1,290
Deferred income taxes (Note 11)                                 39,772            0
Other assets                                                    11,118        2,767
                                                              --------     --------
                        TOTAL ASSETS                          $406,416     $248,651
                                                              ========     ========

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt (Restated - Note 10)      $    471     $ 57,543
  Accounts payable                                             128,552       57,195
  Other accrued liabilities (Note 7)                            25,364       19,054
                                                              --------     --------
    TOTAL CURRENT LIABILITIES                                  154,387      133,792
Long-term debt, less current portion (Restated - Note 10)       43,826       32,067
Other liabilities                                                5,364        4,510
                                                              --------     --------
    TOTAL LONG-TERM LIABILITIES                                 49,190       36,577
Commitments and contingencies (Note 13)

Stockholders' equity (Note 14):
  Preferred stock, $.01 par value; $1,000 stated value;
    2,000 shares authorized; none
    issued and outstanding at March 31, 2004 and 2003                0            0
  New common equity - issuable                                       0           98
  Common stock, $.01 par value, 50,000 shares authorized;
    23,355 and
    20,305 shares issued and outstanding at March 31, 2004
    and 2003, respectively                                         234          203
  Warrants                                                         427          423
  Additional paid-in capital                                   146,969       65,352
  Deferred compensation                                         (8,295)           0
  Accumulated other comprehensive loss                          (2,303)      (2,212)
  Retained earnings                                             65,807       14,418
                                                              --------     --------
    TOTAL STOCKHOLDERS' EQUITY                                 202,839       78,282
                                                              --------     --------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY           $406,416     $248,651
                                                              ========     ========
</Table>

          See accompanying notes to consolidated financial statements

                                       F-4
<PAGE>

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

<Table>
<Caption>
                                                                                                      | PREDECESSOR
                                                                        REORGANIZED COMPANY           |   COMPANY
                                                              --------------------------------------- | ------------
                                                                                             NINE     |    THREE
                                                              YEAR ENDED    YEAR ENDED   MONTHS ENDED | MONTHS ENDED
                                                               MARCH 31,    MARCH 31,     MARCH 31,   |   JUNE 30,
                                                                 2004          2003          2002     |     2001
                                                              ----------    ----------   ------------ | ------------
<S>                                                           <C>           <C>          <C>          | <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                 |
Net income (loss)                                             $    51,389    $ 20,501      $ (6,083)  |  $ 128,599
Adjustments to reconcile net income (loss) to cash flows                                              |
  from operating activities:                                                                          |
    Depreciation and amortization                                  18,193      17,533        13,673   |      4,718
    (Gain) loss on sale of property and equipment                     886      (2,368)          185   |       (117)
    Non-cash and non-recurring expense (income)                       607        (695)        3,944   |      1,941
    Provision for uncollectible receivables                         1,186         365         2,035   |      1,058
    Amortization of deferred compensation                             972          35             0   |          0
    Amortization of debt issuance costs and bond discount           1,280       2,185           894   |      1,359
    (Income) loss from joint ventures                              (8,300)     (3,113)          224   |         56
    Deferred income taxes                                          21,310      12,197             0   |          0
    Non-cash reorganization items                                       0           0             0   |   (142,242)
    (Gain) loss on debt extinguishment                                363        (607)            0   |          0
    Cumulative effect of change in accounting principle                 0           0             0   |        358
    Other                                                             567         149          (266)  |       (176)
  Changes in assets and liabilities, net of acquisitions:                                             |
    Accounts and other receivables                                (80,831)     (4,970)        8,681   |      5,141
    Inventories                                                   (30,809)    (12,038)        4,240   |     (1,749)
    Accounts payable                                               71,357      14,272        (7,927)  |      9,200
    Other                                                           6,702       2,847          (420)  |      3,856
                                                              -----------    --------      --------   |  ---------
Net cash provided by operating activities                          54,872      46,293        19,180   |     12,002
                                                                                                      |
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                 |
    Purchases of property and equipment                           (14,995)     (8,483)       (3,295)  |     (1,392)
    Acquisitions, net of cash acquired                             (1,071)     (3,300)            0   |          0
    Proceeds from sale of property and equipment                      624      10,625           520   |      1,141
    Proceeds from the collection of notes receivable                    0       1,504             0   |          0
    Investments in joint ventures                                    (138)       (180)         (104)  |       (128)
    Other                                                               0          75             0   |          0
                                                              -----------    --------      --------   |  ---------
Net cash provided by (used in) investing activities               (15,580)        241        (2,879)  |       (379)
                                                                                                      |
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                 |
    (Borrowings) Repayments on credit agreement, net                    0     (39,829)      (14,541)  |    111,595
    Issuances of long-term debt                                 1,017,225         309            83   |         32
    Repayments of long-term debt                               (1,031,005)     (2,400)       (1,585)  |       (615)
    Fees paid to issue long-term debt                              (2,990)     (2,760)         (469)  |     (1,339)
    Repurchase of Junior Secured Notes                            (31,896)     (1,823)            0   |          0
    Repayments on debtor-in-possession credit agreement                 0           0             0   |   (121,666)
    Proceeds from exercise of stock options and warrants            9,660           0             0   |          0
    Other                                                               0           0            (9)  |          0
                                                              -----------    --------      --------   |  ---------
Net cash used in financing activities                             (39,006)    (46,503)      (16,521)  |    (11,993)
                                                              -----------    --------      --------   |  ---------
Net increase (decrease) in cash and cash equivalents                  286          31          (220)  |       (370)
Cash and cash equivalents at beginning of period                      869         838         1,058   |      1,428
                                                              -----------    --------      --------   |  ---------
Cash and cash equivalents at end of period                    $     1,155    $    869      $    838   |  $   1,058
                                                              ===========    ========      ========   |  =========
SUPPLEMENTAL CASH FLOW INFORMATION:                                                                   |
Interest paid                                                 $     6,922    $  9,169      $  6,819   |  $   3,905
Taxes paid                                                    $     1,337    $    587      $      7   |  $      39
</Table>

          See accompanying notes to consolidated financial statements

                                       F-5
<PAGE>

                             METAL MANAGEMENT, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)
<Table>
<Caption>
                                       CONVERTIBLE         NEW
                                     PREFERRED STOCK      COMMON      COMMON STOCK                ADDITIONAL
                                     ---------------     EQUITY -     ------------                 PAID-IN       DEFERRED
                                   SERIES B   SERIES C   ISSUABLE   SHARES    AMOUNT   WARRANTS    CAPITAL     COMPENSATION
                                   --------   --------   --------   ------    ------   --------   ----------   ------------
<S>                                <C>        <C>        <C>        <C>       <C>      <C>        <C>          <C>
PREDECESSOR COMPANY:
BALANCE AT MARCH 31, 2001           $ 815     $ 5,100    $     0     60,899   $ 542    $40,428    $ 271,622      $     0
Other                                   0           0          0      1,740      17          0          (17)           0
Net loss before reorganization
  adjustments and fresh start
  adjustments                           0           0          0          0       0          0            0            0
Reorganization adjustments           (815)     (5,100)    65,000    (62,639)   (559)   (40,428)    (271,605)           0
Fresh start adjustments                 0           0          0          0       0          0            0            0
                                    -----     -------    --------   -------   -----    --------   ---------      -------
---------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY:
BALANCE AT JUNE 30, 2001                0           0     65,000          0       0          0            0            0
Distribution of equity in
  accordance with the Plan              0           0    (58,730)    18,070     181        414       58,135            0
Conversion of payable into
  common stock                          0           0          0        323       3          0        1,047            0
Other                                   0           0          0          0       0          0           (9)           0
Net loss                                0           0          0          0       0          0            0            0
Other comprehensive loss                0           0          0          0       0          0            0            0
                                    -----     -------    --------   -------   -----    --------   ---------      -------
BALANCE AT MARCH 31, 2002               0           0      6,270     18,393     184        414       59,173            0
Distribution of equity in
  accordance with the Plan              0           0     (6,172)     1,912      19          6        6,147            0
Other                                   0           0          0          0       0          3           32            0
Net income                              0           0          0          0       0          0            0            0
Other comprehensive loss                0           0          0          0       0          0            0            0
                                    -----     -------    --------   -------   -----    --------   ---------      -------
BALANCE AT MARCH 31, 2003               0           0         98     20,305     203        423       65,352            0
Distribution of equity in
  accordance with the Plan              0           0        (98)         4       0          8           90            0
Issuance of restricted stock and
  options                               0           0          0        560       6          0        9,867       (9,865)
Exercise of stock options and
  warrants and related tax
  benefits                              0           0          0      2,486      25         (4)      19,546            0
Reversal of predecessor company
  valuation allowance (Note 11)         0           0          0          0       0          0       52,114            0
Amortization of deferred
  compensation                          0           0          0          0       0          0            0        1,570
Net income                              0           0          0          0       0          0            0            0
Other comprehensive loss                0           0          0          0       0          0            0            0
                                    -----     -------    --------   -------   -----    --------   ---------      -------
BALANCE AT MARCH 31, 2004           $   0     $     0    $     0     23,355   $ 234    $   427    $ 146,969      $(8,295)
                                    =====     =======    ========   =======   =====    ========   =========      =======

<Caption>
                                    ACCUMULATED
                                       OTHER       RETAINED
                                   COMPREHENSIVE   EARNINGS
                                       LOSS        (DEFICIT)     TOTAL
                                   -------------   ---------     -----
<S>                                <C>             <C>         <C>
PREDECESSOR COMPANY:
BALANCE AT MARCH 31, 2001             $  (303)     $(461,461)  $(143,257)
Other                                       0              0           0
Net loss before reorganization
  adjustments and fresh start
  adjustments                               0        (16,193)    (16,193)
Reorganization adjustments                  0        477,654     224,147
Fresh start adjustments                   303              0         303
                                      -------      ---------   ---------
---------------------------------
REORGANIZED COMPANY:
BALANCE AT JUNE 30, 2001                    0              0      65,000
Distribution of equity in
  accordance with the Plan                  0              0           0
Conversion of payable into
  common stock                              0              0       1,050
Other                                       0              0          (9)
Net loss                                    0         (6,083)     (6,083)
Other comprehensive loss                 (471)             0        (471)
                                      -------      ---------   ---------
BALANCE AT MARCH 31, 2002                (471)        (6,083)     59,487
Distribution of equity in
  accordance with the Plan                  0              0           0
Other                                       0              0          35
Net income                                  0         20,501      20,501
Other comprehensive loss               (1,741)             0      (1,741)
                                      -------      ---------   ---------
BALANCE AT MARCH 31, 2003              (2,212)        14,418      78,282
Distribution of equity in
  accordance with the Plan                  0              0           0
Issuance of restricted stock and
  options                                   0              0           8
Exercise of stock options and
  warrants and related tax
  benefits                                  0              0      19,567
Reversal of predecessor company
  valuation allowance (Note 11)             0              0      52,114
Amortization of deferred
  compensation                              0              0       1,570
Net income                                  0         51,389      51,389
Other comprehensive loss                  (91)             0         (91)
                                      -------      ---------   ---------
BALANCE AT MARCH 31, 2004             $(2,303)     $  65,807   $ 202,839
                                      =======      =========   =========
</Table>

          See accompanying notes to consolidated financial statements

                                       F-6
<PAGE>

                             METAL MANAGEMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL

Business
     Metal Management, Inc., a Delaware corporation, and its wholly owned
subsidiaries (the "Company") are principally engaged in the business of
collecting and processing ferrous and non-ferrous metals. The Company collects
industrial scrap metal and obsolete scrap metal, processes it into reusable
forms, and supplies the recycled metals to its customers, including electric-arc
furnace mills, integrated steel mills, foundries, secondary smelters and metals
brokers. These services are provided through the Company's recycling facilities
located in 13 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.

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 in consolidation. Investments in less than
majority-owned companies (principally corporate joint ventures), which engage in
ferrous and non-ferrous scrap metal recycling, are accounted for using the
equity method.

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

     Upon emergence from Chapter 11 bankruptcy, the Company adopted fresh-start
reporting pursuant to the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7"). Under fresh-start reporting, a
reorganization value for the entity was determined by the Company's financial
advisor based upon the estimated fair value of the enterprise before considering
values allocated to debt to be settled in the reorganization. The reorganization
value was allocated to the fair values of the Company's assets and liabilities.
The portion of the reorganization value which could not be attributed to
specific tangible or identified intangible assets was $15.5 million. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangibles," this amount was reported as "Goodwill" in the
consolidated financial statements (See Note 9 - Business Acquisitions, Goodwill
and Other Intangible Assets).

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

                                       F-7
<PAGE>
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Revenue recognition
     The Company's primary source of revenue is from the sale of processed
ferrous and non-ferrous scrap metals. The Company also generates revenues from
the brokering of scrap metals or from services performed, including but not
limited to tolling, stevedoring and dismantling. Revenues from processed ferrous
and non-ferrous scrap metal sales are recognized when title passes to the
customer. Revenues relating to brokered sales are recognized upon receipt of the
materials by the customer. Revenues from services are recognized as the service
is performed. Sales adjustments related to price and weight differences and
allowances for uncollectible receivables are accrued against revenues as
incurred.

Shipping and handling revenues and costs
     The Company classifies shipping and handling charges billed to customers as
revenue. The Company classifies shipping and handling costs incurred as a
component of cost of sales.

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

     The Company previously utilized futures and forward contracts to hedge its
net position in certain non-ferrous metals. As a result of adopting SFAS No.
133, the Company marked its outstanding futures and forwards contracts to market
at April 1, 2001 and recognized the changes in fair values of its futures and
forwards contracts in the statement of operations. The cumulative effect of
adopting SFAS No. 133 resulted in an after-tax reduction in net earnings of $0.4
million recorded as of April 1, 2001. The Company currently does not utilize any
futures or forward contracts.

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

Accounts receivable
     Accounts receivable represents amounts due from customers on product,
broker and other sales. The carrying amount of accounts receivable approximates
fair value. The Company's determination of the allowance for uncollectible
accounts receivable includes a number of factors, including the age of the
balance, past experience with the customer account, changes in collection
patterns and general industry conditions. Allowance for uncollectible accounts
were approximately $1.7 million and $1.0 million at March 31, 2004 and 2003,
respectively.

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

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 40 years for buildings and improvements, 3 to 15 years for
operating machinery and equipment, 2 to 10 years for furniture, fixtures and
computer equipment and 3 to 10 years for automobiles and trucks. When assets are
sold or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is recorded in the statement of
operations.

Goodwill and Other Intangible Assets
     Goodwill includes the excess reorganization value recognized in fresh-start
reporting and the excess of the acquisition cost of an acquired entity over the
fair value of identifiable net assets acquired. Pursuant to the provisions of
SFAS No. 142, goodwill is no longer amortized, but is subject to an impairment
test annually, or earlier if certain events occur indicating that the carrying
value of goodwill may be impaired. Other intangible assets consist of customer
lists and non-competition agreements. The Company amortizes these intangibles on
a straight-line basis over the estimated useful life or the term of the related
agreements.

Long-lived assets
     The Company periodically evaluates the recoverability of its long-lived
assets (including other intangible assets) in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." Such assets
are evaluated for impairment whenever events or circumstances indicate that the
carrying amount of such assets (or group of assets) may not be recoverable.
Impairment is determined to exist if the estimated future undiscounted cash
flows are less than the carrying value of such asset. If an impairment exists,
the asset is written down to its estimated fair value.

Deferred financing costs, net
     Deferred financing costs represent costs incurred in connection with the
placement of long-term debt and are capitalized and amortized to interest
expense using the straight-line method over the term of the long-term debt.
Deferred financing costs expensed for the years ended March 31, 2004 and 2003,
the nine months ended March 31, 2002, and the three months ended June 30, 2001
was $1.3 million, $2.2 million, $0.9 million and $1.2 million, respectively. The
deferred financing cost accumulated amortization at March 31, 2004 and 2003 was
$4.4 million and $3.1 million, respectively.

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

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

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

     The Company historically had not experienced material losses from the
noncollection of accounts receivables. However, from April 2001 to March 2002,
weak market conditions in the steel sector led to bankruptcy filings by certain
of the Company's customers including, but not limited to, Northwestern Steel and
Wire Company and Special Metals Corporation. These bankruptcies resulted in
uncollected receivables of approximately $3.1 million which were recorded in the
three months ended June 30, 2001 and the nine months ended March 31, 2002.

     For the year ended March 31, 2004, the ten largest customers of the Company
represented approximately 44% of consolidated net sales. These customers
comprised approximately 52% of accounts receivable at March 31, 2004. Sales
during the year ended March 31, 2004 to The David J. Joseph Company represented
approximately 19% of consolidated net sales.

     For the year ended March 31, 2004, export sales represented approximately
29% of consolidated net sales. At March 31, 2004, receivables from foreign
customers represented approximately 10% of consolidated accounts receivable.

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

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

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

     The fair value of the Credit Agreement approximates its carrying value as
the facility bears a floating rate of interest based on the prime rate. The fair
market value of the Junior Secured Notes, based on market quotes, was $23.6
million (carrying value of $31.5 million) at March 31, 2003. The carrying value
of the Company's other borrowings approximates fair value at March 31, 2004 and
2003.

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 to stock-based compensation expense.

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

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

<Table>
<Caption>
                                                                              | PREDECESSOR
                                                  REORGANIZED COMPANY         |   COMPANY
                                          ----------------------------------- | ------------
                                            YEAR        YEAR      NINE MONTHS | THREE MONTHS
                                            ENDED       ENDED        ENDED    |    ENDED
                                          MARCH 31,   MARCH 31,    MARCH 31,  |   JUNE 30,
                                            2004        2003         2002     |     2001
                                          ---------   ---------   ----------- | ------------
<S>                                       <C>         <C>         <C>         | <C>
Net income (loss), as reported            $ 51,389     $20,501      $(6,083)  |   $128,599
  Add: Stock-based compensation                                               |
     expense included in reported net                                         |
     income,                                                                  |
     net of related tax effects              1,079          22            0   |          0
  Deduct: Total stock-based compensation                                      |
     expense determined under the fair                                        |
     value method for all awards, net of                                      |
     related                                                                  |
     tax effects                            (4,253)       (956)        (962)  |       (328)
                                          ---------    -------      -------   |   --------
                                                                              |
PRO FORMA NET INCOME (LOSS)               $ 48,215     $19,567      $(7,045)  |   $128,271
                                          =========    =======      =======   |   ========
Earnings per share:                                                           |
  Basic -- as reported                    $   2.42     $  1.01      $ (0.30)  |   $   2.08
                                          =========    =======      =======   |   ========
  Basic -- pro forma                      $   2.27     $  0.96      $ (0.35)  |   $   2.08
                                          =========    =======      =======   |   ========
                                                                              |
  Diluted -- as reported                  $   2.27     $  0.99      $ (0.30)  |   $   2.08
                                          =========    =======      =======   |   ========
  Diluted -- pro forma                    $   2.11     $  0.94      $ (0.35)  |   $   2.08
                                          =========    =======      =======   |   ========
ASSUMPTIONS:                                                                  |
Expected life (years)                            4           3            3   |          3
Expected volatility                         106.7%      124.2%       269.2%   |      89.8%
Dividend yield                               0.00%       0.00%        0.00%   |      0.00%
Risk-free interest rate                      2.28%       1.93%        4.31%   |      4.48%
Weighted-average fair value per option/                                       |
  warrant granted                         $   7.91     $  1.21      $  0.60   |        n/a
</Table>

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

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

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

Self-insured reserves
     The Company is self-insured for medical claims for most of its employees.
Since April 1, 2003, the Company has also been self-insured for workers'
compensation claims that involve a loss of less than $250,000 per claim. The
Company's exposure to claims is protected by stop-loss insurance policies. The
Company records a reserve for reported but unpaid claims and the estimated cost
of incurred but not reported ("IBNR") claims. IBNR reserves are based on either
a lag estimate (for medical claims) or on actuarial assumptions (for workers'
compensation claims).

New accounting pronouncements
     In January 2003, the Financial Accounting Standards Board (the "FASB")
issued Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"). In December 2003, the FASB issued FIN 46-R "Consolidation of
Variable interest Entities" ("FIN 46-R") (revised December 2003), which replaces
FIN 46. FIN 46-R incorporates certain modifications to FIN 46 adopted by the
FASB subsequent to the issuance of FIN 46, including modifications to the scope
of FIN 46. Additionally, FIN 46-R also incorporates much of the guidance
previously issued in the form of FASB Staff Positions. For all special purposes
entities ("SPEs") and variable interest entities ("VIEs") created prior to
February 1, 2003, public entities must apply either the provisions of FIN 46, or
early adoption of the provisions of FIN 46-R at the end of the first interim or
annual reporting period after December 15, 2003. The adoption of this
interpretation had no impact on the Company's consolidated financial statements.

     In April 2003, the FASB issued Statement SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends SFAS No. 133, to provide clarification on the financial accounting and
reporting of derivative instruments and hedging activities and requires that
contracts with similar characteristics be accounted for on a comparable basis.
The provisions of SFAS No. 149 are effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The adoption of this statement had no impact on the Company's
consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003 and to all other instruments that exist as of the
beginning of the first interim financial reporting period beginning after June
15, 2003. The adoption of this statement had no impact on the Company's
consolidated financial statements.

     In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This revised statement
retains the requirements of the original SFAS No. 132 but requires additional
disclosures concerning the economic resources and obligations related to pension
plans and other postretirement benefits. This revised statement is effective for
fiscal years ending after December 15, 2003. The Company has revised its
disclosures to meet the requirements under this revised standard.

     In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," which supercedes SAB No. 101, "Revenue Recognition in
Financial Statements." SAB No. 104 rescinds accounting guidance in SAB No. 101
related to multiple-element revenue arrangements as this guidance has been
superceded as a result of the issuance of Emerging Issues Task Force ("EITF")
Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables." The adoption of SAB No. 104 had no impact on the Company's
consolidated financial statements.

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

NOTE 3 - REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

     From November 20, 2000 until June 30, 2001, the Company operated its
business as a debtor-in-possession. These bankruptcy proceedings are referred to
as the "Chapter 11 proceedings" herein.

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

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

<Table>
<Caption>
                                                REORGANIZED   |  PREDECESSOR
                                                  COMPANY     |    COMPANY
                                               -------------- | -------------
                                                NINE MONTHS   | THREE MONTHS
                                                   ENDED      |     ENDED
                                               MARCH 31, 2002 | JUNE 30, 2001
                                               -------------- | -------------
<S>                                            <C>            | <C>
Professional fees                                   $151      |   $   6,838
Liability for rejected contracts and                          |
  settlements                                        154      |       2,445
Debt extinguishment                                    0      |    (145,711)
Fresh-start adjustments                                0      |         919
Other                                                152      |         145
                                                    ----      |   ---------
                                                    $457      |   $(135,364)
                                                    ====      |   =========
</Table>

     The consolidated statement of operations of the Predecessor Company for the
three months ended June 30, 2001 reflect fresh start reporting adjustments of
$0.9 million and a gain of $145.7 million related to the discharge of
indebtedness in accordance with the Plan.

     During the Chapter 11 proceedings, the Company and the Official Committee
of Unsecured Creditors each engaged financial advisors. As a result of the
consummation of the Plan, both financial advisors were entitled to restructuring
success fees. The restructuring success fees paid to the Company's financial
advisor aggregated $2.6 million.

     The financial advisor for the Official Committee of Unsecured Creditors was
CIBC World Markets Corp. ("CIBC"), a company in which Daniel W. Dienst, the
Chairman of the Board and Chief Executive Officer of the Company, was previously
a managing director. Fees paid to CIBC during the three months ended June 30,
2001 were $2.6 million, including restructuring success fees of $2.1 million.

NOTE 4 - EQUITY METHOD INVESTMENTS

     The Company has investments in two joint ventures which are engaged in the
scrap metals recycling business. One of its joint venture investments is
Southern Recycling, L.L.C. ("Southern"), one of the largest scrap metals
recyclers in the Gulf Coast region, in which the Company has a 28.5% interest.
Both of these investments are accounted for using the equity method. At March
31, 2004 and 2003, the equity investment included in other assets on the
Company's consolidated balance sheet was $10.6 million and $2.2 million,
respectively.

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

     The following table represents summarized financial information for
Southern at March 31, 2004 and for the year then ended (in thousands):

<Table>
<S>                                         <C>
Net sales                                   $200,470
Gross profit                                  43,507
Net income                                    29,686

Current assets                              $ 56,535
Noncurrent assets                             17,066
Current liabilities                           22,578
Noncurrent liabilities                         8,707
</Table>

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

     During the years ended March 31, 2004 and 2003, the nine months ended March
31, 2002 and the three months ended June 30, 2001, the Company recorded the
following non-cash and non-recurring expense (income) and related reserve
activity (in thousands):

<Table>
<Caption>
                                   SEVERANCE,
                                    FACILITY          ASSET
                                   CLOSURE AND     IMPAIRMENT
                                      OTHER      AND DIVESTITURE
                                     CHARGES      GAINS/LOSSES      TOTAL
                                   -----------   ---------------    -----
<S>                                <C>           <C>               <C>
PREDECESSOR COMPANY:
-----------------------
Reserve balances at March 31,
  2001                               $   185         $     0       $   185
Charge to income                           0           1,941         1,941
Cash payments                           (148)              0          (148)
Non-cash application                       0          (1,941)       (1,941)
--------------------------------------------------------------------------
REORGANIZED COMPANY:
------------------------
Reserve balances at June 30, 2001         37               0            37
Charge to income                           0           3,944         3,944
Cash payments                            (37)              0           (37)
Non-cash application                       0          (3,944)       (3,944)
                                     -------         -------       -------
Reserve balances at March 31,
  2002                                     0               0             0
Credit to income                           0            (695)         (695)
Non-cash application                       0             695           695
                                     -------         -------       -------
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
                                     =======         =======       =======
</Table>

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

SEVERANCE, FACILITY CLOSURE AND OTHER CHARGES AND ASSET IMPAIRMENT

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

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

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

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

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

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

NOTE 6 - EARNINGS PER SHARE

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

<Table>
<Caption>
                                                                                          | PREDECESSOR
                                                              REORGANIZED COMPANY         |   COMPANY
                                                      ----------------------------------- | ------------
                                                        YEAR        YEAR      NINE MONTHS | THREE MONTHS
                                                        ENDED       ENDED        ENDED    |    ENDED
                                                      MARCH 31,   MARCH 31,    MARCH 31,  |   JUNE 30,
                                                        2004        2003         2002     |     2001
                                                      ---------   ---------   ----------- | ------------
<S>                                                   <C>         <C>         <C>         | <C>
NUMERATOR:                                                                                |
Income (loss) before cumulative effect of change in                                       |
  accounting principle                                 $51,389     $20,501      $(6,083)  |   $128,957
Elimination of interest expense upon assumed                                              |
  conversion of note payable, net of tax                     0          77            0   |          0
                                                       -------     -------      -------   |   --------
Net income (loss)                                      $51,389     $20,578      $(6,083)  |   $128,957
                                                       =======     =======      =======   |   ========
DENOMINATOR:                                                                              |
Weighted average number of shares outstanding           21,243      20,323       20,239   |     61,731
Assumed conversion of note payable                           0         384            0   |          0
Incremental common shares attributable to dilutive                                        |
  stock options and warrants                             1,410          34            0   |          0
                                                       -------     -------      -------   |   --------
Weighted average number of diluted shares                                                 |
  outstanding                                           22,653      20,741       20,239   |     61,731
                                                       =======     =======      =======   |   ========
Basic income (loss) per share                          $  2.42     $  1.01      $ (0.30)  |   $   2.09
                                                       =======     =======      =======   |   ========
Diluted income (loss) per share                        $  2.27     $  0.99      $ (0.30)  |   $   2.09
                                                       =======     =======      =======   |   ========
</Table>

     For the years ended March 31, 2004 and 2003, approximately 0.7 million and
4.1 million, respectively, of the Company's stock options and warrants were
excluded from the diluted EPS calculation as the exercise prices of the stock
options and warrants were greater than the average market price of the Company's
common stock for the period.

     Due to the net loss for the nine months ended March 31, 2002, the effect of
dilutive stock options and warrants and convertible note payable were not
included as their effect would have been anti-dilutive.

NOTE 7 - OTHER FINANCIAL INFORMATION

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

<Table>
<Caption>
                                                     2004      2003
                                                     ----      ----
<S>                                                 <C>       <C>
Ferrous metals                                      $50,115   $32,791
Non-ferrous metals                                   29,809    15,851
Other                                                   204       677
                                                    -------   -------
                                                    $80,128   $49,319
                                                    =======   =======
</Table>

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

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

<Table>
<Caption>
                                                               2004      2003
                                                               ----      ----
<S>                                                           <C>       <C>
Accrued employee compensation and benefits                    $15,469   $ 9,783
Accrued real and personal property taxes                        1,675     1,659
Accrued insurance                                               2,722     1,059
Accrued income taxes                                            2,679     1,547
Accrued interest                                                  162     1,483
Other                                                           2,657     3,523
                                                              -------   -------
                                                              $25,364   $19,054
                                                              =======   =======
</Table>

Comprehensive income (loss)
     Comprehensive income (loss) was as follows (in thousands):

<Table>
<Caption>
                                                                                    | PREDECESSOR
                                                       REORGANIZED COMPANY          |   COMPANY
                                               ------------------------------------ | ------------
                                                 YEAR        YEAR          NINE     |    THREE
                                                 ENDED       ENDED     MONTHS ENDED | MONTHS ENDED
                                               MARCH 31,   MARCH 31,    MARCH 31,   |   JUNE 30,
                                                 2004        2003          2002     |     2001
                                               ---------   ---------   ------------ | ------------
<S>                                            <C>         <C>         <C>          | <C>
Net income (loss)                               $51,389     $20,501      $(6,083)   |   $128,599
Adjustment to minimum pension liability             (91)     (1,741)        (471)   |          0
                                                -------     -------      -------    |   --------
                                                $51,298     $18,760      $(6,554)   |   $128,599
                                                =======     =======      =======    |   ========
</Table>

Interest and other income (expense), net
     Significant components of interest and other income (expense) are as
follows (in thousands):

<Table>
<Caption>
                                                                                    | PREDECESSOR
                                                        REORGANIZED COMPANY         |   COMPANY
                                                ----------------------------------- | ------------
                                                  YEAR        YEAR      NINE MONTHS | THREE MONTHS
                                                  ENDED       ENDED        ENDED    |    ENDED
                                                MARCH 31,   MARCH 31,    MARCH 31,  |   JUNE 30,
                                                  2004        2003         2002     |     2001
                                                ---------   ---------   ----------- | ------------
<S>                                             <C>         <C>         <C>         | <C>
Gain (loss) on disposal of real and personal                                        |
  property                                        $(886)     $2,368        $(185)   |     $  0
Interest income                                       9         180          273    |       92
Other income                                        (25)        386          199    |       19
                                                  -----      ------        -----    |     ----
                                                  $(902)     $2,934        $ 287    |     $111
                                                  =====      ======        =====    |     ====
</Table>

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

NOTE 8 - PROPERTY AND EQUIPMENT

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

<Table>
<Caption>
                                                    2004       2003
                                                    ----       ----
<S>                                               <C>        <C>
Land and improvements                             $ 30,989   $ 23,759
Buildings and improvements                          20,662     19,180
Operating machinery and equipment                   96,284     87,846
Automobiles and trucks                               9,376      8,724
Computer equipment and software                      2,207      2,227
Furniture, fixture and office equipment                788        773
Construction in progress                               446      2,570
                                                  --------   --------
                                                   160,752    145,079
Less -- accumulated depreciation                   (46,044)   (30,395)
                                                  --------   --------
                                                  $114,708   $114,684
                                                  ========   ========
</Table>

     Depreciation expense was $18.0 million, $17.5 million, $13.7 million and
$4.7 million for the years ended March 31, 2004 and 2003, the nine months ended
March 31, 2002 and the three months ended June 30, 2001, respectively. At March
31, 2003, $3.5 million of property and equipment was classified as held-for-sale
and is reported in prepaid expenses and other assets in the consolidated balance
sheet.

NOTE 9 - BUSINESS ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

     In October 2002, the Company acquired certain assets of a scrap metals
recycling company. The aggregate purchase consideration was $3.3 million
consisting of (i) $3.0 million of cash paid at closing, (ii) contingent
consideration of $0.2 million of cash placed in escrow, and payable after the
achievement of certain earnout targets measured by tons of material purchased
from acquired customer accounts, and (iii) $0.1 million of transaction costs.
The contingent consideration was determined to be $0.1 million and was paid in
May 2004. The Company obtained independent valuations of the tangible and
intangible assets associated with the purchase and allocated the purchase
consideration as follows: (i) $0.9 million to the fair value of equipment, (ii)
$1.3 million to customer lists (which is being amortized over 15 years), and
(iii) $1.1 million to goodwill.

     In November 2003, the Company acquired certain scrap metal recycling assets
of H. Bixon and Sons located in New Haven, Connecticut. The aggregate purchase
consideration was $1.1 million consisting of (i) $0.9 million of cash paid at
closing, (ii) contingent consideration of up to $0.3 million per year for three
years based on the achievement of certain earnout targets, and (iii) $0.2
million of transaction costs. The Company obtained independent valuations on the
equipment purchased and allocated the purchase consideration as follows: (i)
$1.2 million to the fair value of equipment and (ii) $0.1 million to
liabilities.

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

<Table>
<Caption>
                                                 2004                      2003
                                        -----------------------   -----------------------
                                         GROSS                     GROSS
                                        CARRYING   ACCUMULATED    CARRYING   ACCUMULATED
                                         AMOUNT    AMORTIZATION    AMOUNT    AMORTIZATION
                                        --------   ------------   --------   ------------
<S>                                     <C>        <C>            <C>        <C>
Intangible assets:
  Customer lists                         $1,280       $(128)       $1,280       $ (43)
  Non-compete agreement                     240         (70)          240         (10)
  Pension plan intangible                   192           0             6           0
Goodwill                                  1,176           0         4,336           0
                                         ------       -----        ------       -----
  Goodwill and other intangibles, net    $2,888       $(198)       $5,862       $ (53)
                                         ======       =====        ======       =====
</Table>

                                       F-18
<PAGE>
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
FISCAL YEAR ENDING MARCH 31,
----------------------------
<S>                                     <C>
2005                                    $145
2006                                     145
2007                                     135
2008                                      85
2009                                      85
</Table>

     During the years ended March 31, 2004 and 2003, the Company reduced
goodwill by $3.3 million and $12.2 million, respectively, as a result of the
utilization of pre-emergence deferred tax assets (see Note 11 - Income Taxes).

NOTE 10 - LONG-TERM DEBT

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

<Table>
<Caption>
                                                          2004       2003
                                                          ----       ----
<S>                                                      <C>       <C>
Credit Agreement:
  Revolving credit facility, average interest rate of
     4.62% in 2004 and 4.97% in 2003                     $23,478   $ 57,225
  Term loan, 8.50%                                        17,900          0
12 3/4% Junior Secured Notes                                   0     31,533
Other debt (including capital leases), due 2004 to
  2009, average interest rate of 5.88% in 2004 and
  8.26% in 2003, with equipment and real estate
  generally pledged as collateral                          2,919        852
                                                         -------   --------
                                                          44,297     89,610
Less -- current portion of long-term debt (Restated *)      (471)   (57,543)
                                                         -------   --------
                                                         $43,826   $ 32,067
                                                         =======   ========
</Table>

-------------------------------
* See "Amendment to the Credit Agreement and its Effect on Classification of the
  Credit Agreement" discussion below.

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

<Table>
<Caption>
FISCAL YEAR ENDING MARCH 31,
----------------------------
<S>                                  <C>
  2005                               $   471
  2006                                18,237
  2007                                   344
  2008                                23,840
  2009                                 1,343
Thereafter                                62
                                     -------
  Total                              $44,297
                                     =======
</Table>

Credit Agreement
     On August 13, 2003, the Company entered into an amended and restated credit
facility (the "Credit Agreement") with Deutsche Bank Trust Company Americas, as
agent for the lenders thereunder. The Credit Agreement provides for maximum
borrowings of $130 million and expires on July 1, 2007. $110 million of the

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

Credit Agreement is available as a revolving loan and letter of credit facility
and $20 million as a term loan. In consideration for the Credit Agreement, the
Company paid fees and expenses of approximately $2.6 million. The Credit
Agreement is available to fund working capital needs and for general corporate
purposes.

     Borrowings under the Credit Agreement are subject to certain borrowing base
limitations based upon a formula equal to 85% of eligible accounts receivable,
the lesser of $45 million or 70% of eligible inventory, a fixed asset sublimit
of $7.7 million as of March 31, 2004, and a term loan of $20.0 million (the
"Term Loan"). The fixed asset sublimit amortizes by $2.5 million on a quarterly
basis and under certain other conditions. Upon the full amortization of the
fixed asset sublimit, the Term Loan will then amortize by $2.5 million on a
quarterly basis and under certain other conditions. A security interest in
substantially all of the assets and properties of the Company, including pledges
of the capital stock of the Company's subsidiaries, has been granted to the
agent for the lenders as collateral against the obligations of the Company under
the Credit Agreement. Pursuant to the Credit Agreement, the Company pays a fee
of .375% on the undrawn portion of the facility.

     Borrowings on all outstanding balances under the Credit Agreement (other
than the Term Loan) bear interest, at the Company's option, either at the prime
rate (as specified by Deutsche Bank AG, New York Branch) plus a margin or LIBOR
plus a margin. The margin on prime rate loans range from 0.50% to 1.00% and the
margin on LIBOR loans range from 2.50% to 3.00%. The margin is based on the
leverage ratio (as defined in the Credit Agreement) achieved by the Company for
the preceding quarter. Based on the Company's current leverage ratio, the
Company is borrowing at LIBOR plus 2.50%. Borrowings under the Term Loan bear
interest at LIBOR plus 6.00% (with a floor on LIBOR equal to 2.50%).

     Under the Credit Agreement, the Company is required to satisfy specified
financial covenants, including a minimum fixed charge coverage ratio of 1.25 to
1.00 and a maximum leverage ratio of 3.00 to 1.00, through December 31, 2004.
After December 31, 2004, the maximum leverage ratio is 2.25 to 1.00. Both ratios
are tested for the twelve-month period ending each fiscal quarter. The Credit
Agreement also provides for maximum capital expenditures of $16 million for the
twelve-month period ending each fiscal quarter.

     The Credit Agreement also contains restrictions which, among other things,
limit the Company's ability to (i) incur additional indebtedness; (ii) pay
dividends; (iii) enter into transactions with affiliates; (iv) enter into
certain asset sales; (v) engage in certain acquisitions, investments, mergers
and consolidations; (vi) prepay certain other indebtedness; (vii) create liens
and encumbrances on the Company's assets; and (viii) engage in other matters
customarily restricted in such agreements.

     The Company's ability to meet financial ratios and tests in the future may
be affected by events beyond its control, including fluctuations in operating
cash flows and working capital. While the Company currently expects to be in
compliance with the covenants and satisfy the financial ratios and tests in the
future, there can be no assurance that the Company will meet such financial
ratios and tests or that it will be able to obtain future amendments or waivers
to the Credit Agreement, if so needed, to avoid a default. In the event of a
default, the lenders could elect to not make loans available to the Company and
declare all amounts borrowed under the Credit Agreement to be due and payable.

Amendment to the Credit Agreement and its effect on classification of the Credit
Agreement
     The Credit Agreement was amended on February 10, 2004. The amendment
eliminated the requirement that all proceeds from the collection of customer
accounts be swept automatically to an account that reduced borrowings under the
Credit Agreement from and after the closing date of the Credit Agreement,
provided the Company satisfies certain conditions as specified in the Credit
Agreement. Pursuant to the amendment, the Company now controls all collections
through its lock-box accounts. As a result of the amendment, and the expectation
that the Company will satisfy the conditions specified in the Credit Agreement,
the Company classifies the amounts outstanding under the Credit Agreement as a
long-term obligation as of March 31,

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

2004. The Credit Agreement, which was entered into by the Company on August 13,
2003, matures on July 1, 2007 subject to the terms and conditions of the Credit
Agreement.

     Prior to the amendment, the Credit Agreement previously required the
Company to remit all collections received into its lock-box accounts into an
account that would automatically reduce the borrowings under the Credit
Agreement. Recently, the Company determined that the Credit Agreement contains
provisions that are deemed to be subjective acceleration clauses which provide
the lenders with an ability to restrict future borrowings under the Credit
Agreement. In accordance with EITF Issue No. 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements That
Include both a Subjective Acceleration Clause and a Lock-Box Arrangement," the
existence of the lock-box arrangement and subjective acceleration clauses
requires the classification of the Credit Agreement as a current liability for
dates preceding the amendment. The Company's prior credit agreement, which was
repaid in its entirety on August 13, 2003, had similar lock-box arrangements and
subjective acceleration clauses. Accordingly, the Company has restated through
reclassification its March 31, 2003 balance sheet to properly classify the
amounts outstanding under that prior credit agreement as a current liability.
There were no other changes to the balance sheet and no changes to the results
of operations. The reclassification of amounts owing under the Company's prior
credit agreement (which was repaid on August 13, 2003) to a short-term liability
at March 31, 2003 does not affect the Company's operating results, cash flows or
liquidity.

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

Debt extinguishment
     On April 1, 2003, the Company adopted SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This statement requires the classification of gains and losses
from extinguishment of debt as a component of income from operations. The
Company previously recorded gains and losses from extinguishments of debt as an
extraordinary item, net of income taxes. During the year ended March 31, 2003,
the Company repurchased $2.4 million par amount of Junior Secured Notes and
recognized an extraordinary gain. The Company reclassified $607,000 ($359,000
net of tax) from extraordinary gain on extinguishment of debt to gain on debt
extinguishment.

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

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

NOTE 11 - INCOME TAXES

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

<Table>
<Caption>
                                                              | PREDECESSOR
                                 REORGANIZED COMPANY          |   COMPANY
                         ------------------------------------ | ------------
                           YEAR        YEAR          NINE     |    THREE
                           ENDED       ENDED     MONTHS ENDED | MONTHS ENDED
                         MARCH 31,   MARCH 31,    MARCH 31,   |   JUNE 30,
                           2004        2003          2002     |     2001
                         ---------   ---------   ------------ | ------------
<S>                      <C>         <C>         <C>          | <C>
Federal:                                                      |
  Current                 $   683     $   363         $0      |      $0
  Deferred                 20,648      10,452          0      |       0
                          -------     -------         --      |      --
                           21,331      10,815          0      |       0
                          -------     -------         --      |      --
State:                                                        |
  Current                 $   872     $   223         $0      |      $0
  Deferred                  1,577       1,745          0      |       0
                          -------     -------         --      |      --
                            2,449       1,968          0      |       0
                          -------     -------         --      |      --
Total tax provision       $23,780     $12,783         $0      |      $0
                          =======     =======         ==      |      ==
</Table>

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

<Table>
<Caption>
                                                            2004       2003
                                                            ----       ----
<S>                                                       <C>        <C>
Deferred tax assets:
  Net operating loss carryforward                         $ 29,389   $ 41,274
  Goodwill and other intangibles                            31,998     37,380
  Depreciation                                                   0      1,435
  Employee benefit accruals                                  1,495      1,222
  AMT credit                                                   945        363
  Other                                                      2,855      2,151
                                                          --------   --------
                                                            66,682     83,825
                                                          --------   --------
Deferred tax liabilities:
  Depreciation                                             (19,877)   (24,392)
  Joint ventures                                            (1,316)      (250)
                                                          --------   --------
                                                           (21,193)   (24,642)
                                                          --------   --------
Net deferred tax asset before valuation allowance           45,489     59,183
Valuation allowance                                         (1,516)   (59,183)
                                                          --------   --------
Net deferred tax asset                                    $ 43,973   $      0
                                                          ========   ========
</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 three months ended December 31,
2003, the Company filed its tax return for the year ended March 31, 2003,
recorded the final effects of post and pre-emergence tax positions and updated
its forecasts of future operations. The updated forecasts took into
consideration current market conditions and the eight consecutive quarters of
profitable operations through December 2003. Based on these factors, the Company
reversed most of the valuation allowance recorded against the emergence date net
deferred tax assets because it believed it is more likely than not that these
deferred tax assets will be realized. Significant judgment is required in these
evaluations, and differences in

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

future results from the Company's estimates could result in material differences
in the realization of these assets. In accordance with SFAS No. 109, "Accounting
for Income Taxes," the reversal of the emergence date valuation allowance
reduced the excess reorganization value recorded in fresh-start reporting to
zero and the remainder was recorded as an increase to additional paid-in
capital. As of March 31, 2004, the Company has a $1.5 million valuation
allowance associated with certain state NOL carryforwards due to either their
short expiration periods or the expectation that more likely than not these
benefits will not be realized. The Company's ability to utilize NOL
carryforwards could become subject to annual limitations under Section 382 of
the Internal Revenue Code if a change of control occurs, as defined by the
Internal Revenue Code, and could result in increased income tax payment
obligations.

     During the year ended March 31, 2004, the Company also recorded a tax
benefit of $9.9 million, 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 lower utilization of NOL
carryforwards, 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>
                                                                                          | PREDECESSOR
                                                             REORGANIZED COMPANY          |   COMPANY
                                                     ------------------------------------ | ------------
                                                       YEAR        YEAR          NINE     |    THREE
                                                       ENDED       ENDED     MONTHS ENDED | MONTHS ENDED
                                                     MARCH 31,   MARCH 31,    MARCH 31,   |   JUNE 30,
                                                       2004        2003          2002     |     2001
                                                     ---------   ---------   ------------ | ------------
<S>                                                  <C>         <C>         <C>          | <C>
Statutory federal income tax rate                      35.0%       35.0%        (35.0)%   |     35.0%
State income taxes, net of federal benefit              3.2         4.5          (3.9)    |      3.9
Change in valuation allowance                            --        (0.6)         37.3     |    (21.5)
Export sales benefit                                   (3.8)       (1.1)           --     |       --
Loss on sale of capital stock                          (0.6)         --            --     |       --
Non-taxable cancellation of indebtedness income          --          --            --     |    (19.4)
Non-deductible reorganization costs                      --          --            --     |      2.0
Other                                                  (2.2)        0.6           1.6     |      0.0
                                                       ----        ----         -----     |    -----
Effective income tax rate                              31.6%       38.4%          0.0%    |      0.0%
                                                       ====        ====         =====     |    =====
</Table>

NOTE 12 - 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 25%
of the employee's pre-tax contribution, up to 6% of the employee's compensation.
For employees covered under collective bargaining agreements, Company matching
contributions are made in accordance with each respective collective bargaining
agreement. Forfeitures of unvested Company contributions are used to reduce
future Company matching contributions. The Company may also make a discretionary
profit sharing contribution to the 401(k) plan. Matching contributions made by
the Company amounted to $0.3 million for both the years ended March 31, 2004 and
2003, and $0.2 million for the nine months ended March 31, 2002. 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. As of March 31, 2000, the Company permanently
eliminated benefit accruals for future service for non-union employees covered
under its pension plans. For union employees, benefits under the pension plans
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.

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

     The following table sets forth the pension costs under the pension plans
for the years ended March 31 (in thousands):

<Table>
<Caption>
                                               2004    2003    2002
                                               ----    ----    ----
<S>                                            <C>     <C>     <C>
Service cost                                   $ 116   $  88   $  68
Interest cost                                    695     669     527
Expected return on plan assets                  (528)   (666)   (542)
Amortization of prior service cost                94       0       0
Recognized net actuarial loss                    121       0       0
                                               -----   -----   -----
Net periodic benefit cost                      $ 498   $  91   $  53
                                               =====   =====   =====
</Table>

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

<Table>
<Caption>
                                                     2004      2003
                                                     ----      ----
<S>                                                 <C>       <C>
Benefit obligation at beginning of year             $10,298   $ 9,702
Service cost                                            116        88
Interest cost                                           695       669
Plan amendments                                         281         6
Benefits paid                                          (887)     (648)
Actuarial loss                                          744       481
                                                    -------   -------
Benefit obligation at end of year                   $11,247   $10,298
                                                    =======   =======
</Table>

     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>
                                                       2004     2003
                                                       ----     ----
<S>                                                   <C>      <C>
Fair value of plan assets at beginning of year        $6,409   $7,518
Actual gain (loss) on plan assets                      1,082     (882)
Contributions                                            673      421
Benefits paid                                           (887)    (648)
                                                      ------   ------
Fair value of plan assets at end of year              $7,277   $6,409
                                                      ======   ======
</Table>

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

<Table>
<Caption>
                                                     2004      2003
                                                     ----      ----
<S>                                                 <C>       <C>
Funded status                                       $(3,970)  $(3,889)
Unrecognized prior service cost                         192         6
Unrecognized net loss                                 2,781     2,575
                                                    -------   -------
Net amount recognized                               $  (997)  $(1,308)
                                                    =======   =======
</Table>

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

<Table>
<Caption>
                                                     2004      2003
                                                     ----      ----
<S>                                                 <C>       <C>
Intangible asset                                    $   192   $     6
Accrued benefit liability                            (3,492)   (3,526)
Accumulated other comprehensive loss                  2,303     2,212
                                                    -------   -------
Net amount recognized                               $  (997)  $(1,308)
                                                    =======   =======
</Table>

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

     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>
                                              2004     2003     2002
                                              ----     ----     ----
<S>                                           <C>      <C>      <C>
Discount rate                                 6.25%    6.75%    7.50%
Expected return on plan assets                8.00%    9.00%    9.00%
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.

     Declines in equity markets and lower interest rates have caused pension
assets to be lower than actuarial liabilities. As a result, the Company recorded
additional minimum pension liabilities of $0.3 million and $1.7 million during
the years ended March 31, 2004 and 2003, respectively. The expected rate of
return on plan assets assumption is based upon actual historical returns, future
expectations for returns for each asset class and the effect of periodic target
asset allocation rebalancing. These expected results were adjusted for the
payment of reasonable expenses of the plan from plan assets.

     The Company expects to make cash funding contributions to its pension plans
of approximately $1.9 million in the year ending March 31, 2005. 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           2004          2003
                                                     ----------------  -----------   -----------
                   <S>                               <C>               <C>           <C>
                   Equity securities                    60% - 80%            71%           68%
                   Debt securities                      20% - 40%            20%           24%
                   Fixed income and cash                 0% - 15%             9%            8%
                                                                        --------      --------
                   TOTAL                                                    100%          100%
                                                                        ========      ========
</Table>

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

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Leases
     The Company leases certain facilities and equipment under operating leases
expiring at various dates. Lease expense was approximately $10.4 million, $9.7
million, $6.9 million and $2.2 million for the years ended March 31, 2004 and
2003, the nine months ended March 31, 2002 and the three months ended June 30,
2001, respectively. Future minimum lease payments under non-cancelable operating
leases are as follows (in thousands):

<Table>
<Caption>
FISCAL YEAR ENDING MARCH 31,
----------------------------
<S>                                 <C>
2005                                $ 9,021
2006                                  6,805
2007                                  4,619
2008                                  3,981
2009                                  3,364
Thereafter                           17,186
</Table>

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

Letters of credit
     As of March 31, 2004, the Company has outstanding letters of credit of $4.0
million. The letters of credit typically secure the rights to payment to certain
third parties in accordance with specified terms and conditions.

Environmental matters
     The Company is subject to comprehensive local, state, federal and
international regulatory and statutory environmental requirements relating to,
among others, the acceptance, storage, treatment, handling and disposal of solid
waste and hazardous waste, the discharge of materials into air, the management
and treatment of wastewater and storm water, the remediation of soil and
groundwater contamination, the restoration of natural resource damages and the
protection of employees' health and safety. The Company believes that it and its
subsidiaries are in material compliance with currently applicable statutes and
regulations governing the protection of human health and the environment,
including employee health and safety. However, environmental legislation may in
the future be enacted and create liability for past actions and the Company or
its subsidiaries may be fined or held liable for damages.

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

     Recent amendments to CERCLA have limited the exposure of scrap metal
recyclers for sales of certain recyclable material under certain circumstances.
However, the recycling defense is subject to a number of exceptions. Because
CERCLA can be imposed retroactively on shipments that occurred many years ago,
and because EPA and state agencies are still discovering sites that present
problems to public heath or the environment, the Company can provide no
assurance that it will not become liable in the future for significant costs
associated with investigation and remediation of CERCLA waste sites.

     On July 1, 1998, Metal Management Connecticut, Inc. ("MTLM-Connecticut"), a
subsidiary of the Company, acquired the scrap metal recycling assets of Joseph
A. Schiavone Corp. (formerly known as Michael Schiavone & Sons, Inc.). The
acquired assets include real property in North Haven, Connecticut upon which
MTLM-Connecticut's scrap metal recycling operations are currently performed (the
"North Haven Facility"). The owner of Joseph A. Schiavone Corp. was Michael
Schiavone ("Schiavone"). On March 31, 2003, the Connecticut Department of
Environmental Protection filed suit against Joseph A. Schiavone Corp.,
Schiavone, and MTLM-Connecticut in the Superior Court of the State of
Connecticut -- Judicial District of Hartford. The suit alleges, among other
things, that the North Haven Facility discharged and continues to discharge
contaminants, including oily material, into the environment and has failed to
comply with the terms of certain permits and other filing requirements. The suit
seeks injunctions to restrict MTLM-Connecticut from maintaining discharges and
to require MTLM-Connecticut to remediate the facility. The suit also seeks civil
penalties from all of the defendants in accordance with Connecticut
environmental statutes. At this stage, the Company is not able to predict
MTLM-Connecticut's potential liability in connection with this action or any
required investigation and/or remediation. The Company believes that
MTLM-Connecticut has meritorious defenses to certain of the claims asserted in
the suit and MTLM-Connecticut intends to vigorously defend itself against the
claims. In addition, the Company believes

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

it is entitled to indemnification from Joseph A. Schiavone Corp. and Schiavone
for some or all of the obligations and liabilities that may be imposed on
MTLM-Connecticut in connection with this matter under the various agreements
governing its purchase of the North Haven Facility from Joseph A. Schiavone
Corp. The Company cannot provide assurances that Joseph A. Schiavone Corp. or
Schiavone will have sufficient resources to fund any or all indemnifiable claims
that the Company may assert.

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

     During the period from September 2002 to the present, the Arizona
Department of Environmental Quality ("ADEQ") issued five Notices of Violations
("NOVs") to Metal Management Arizona, L.L.C. ("MTLM-Arizona"), a subsidiary of
the Company, for alleged violations at MTLM-Arizona's Tucson and Phoenix
facilities including: (i) not developing and submitting a "Solid Waste Facility
Site Plan"; (ii) placing shredder residue on a surface that does not meet
Arizona's permeability specifications; (iii) alleged failure to follow ADEQ
protocol for sampling and analysis of waste from the shredding of motor vehicles
at the Phoenix facility; and (iv) use of excavated soil to stabilize railroad
tracks adjacent to the Phoenix facility. On September 5, 2003, MTLM-Arizona was
notified that ADEQ had referred the outstanding NOV issues to the Arizona
Attorney General. Two of the original five NOVs have now been closed and
MTLM-Arizona is cooperating fully with ADEQ and the Arizona Attorney General's
office with respect to the remaining issues. At this preliminary stage, the
Company cannot predict MTLM-Arizona's potential liability, if any, in connection
with the NOVs or any required remediation.

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

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

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

     As a result of internal audits conducted by the Company, the Company
determined that current and former employees of certain business units have
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 has appointed a special committee, consisting of all of its
independent directors, to conduct an investigation of these activities. The
Company is cooperating with the U.S. Department of Justice. The Company has
implemented policies to eliminate such cash payments to industrial customers.
During the year ended March 31, 2004, such cash payments to industrial customers
represented approximately 0.7% of the Company's consolidated ferrous and
non-ferrous yard shipments. The fines and penalties under applicable statutes
contemplate qualitative as well as quantitative factors that are not readily
assessable at this stage of the investigation, but could be material. The
Company is not able to predict at this time the outcome of any actions by the
U.S. Department of Justice or other governmental authorities or their effect on
the Company, if any, and accordingly, the Company has not recorded any amounts
in the financial statements.

     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 14 - STOCKHOLDERS' EQUITY

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

     On March 8, 2004, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend. As a result of the stock split, the
Company's stockholders received one additional share for each share of common
stock held on the record date of April 5, 2004. The additional shares of common
stock were distributed on April 20, 2004. All common share and per share amounts
for the Reorganized Company have been retroactively adjusted in the financial
statements and related notes in order to reflect the stock split.

     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, 2004 and 2003, there were 696,244 and
684,029 Series A Warrants outstanding, respectively.

NOTE 15 - STOCK-BASED COMPENSATION PLANS

Stock option plans
     In accordance with the Plan, all options granted by the Predecessor Company
were cancelled as of the Effective Date.

     On September 18, 2002, the shareholders of the Company approved the Metal
Management, Inc. 2002 Incentive Stock Plan (the "2002 Incentive Stock Plan").
The 2002 Incentive Stock Plan provides for the issuance of up to 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

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

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, 2002                        0       $ 0.00
Granted                                                120,000         1.88
Exercised                                                    0         0.00
Expired/forfeited                                            0         0.00
                                                      --------       ------
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
                                                      ========       ======
Exercisable at March 31, 2004                          576,210       $15.41
                                                      ========       ======
</Table>

Warrants
     In accordance with the Plan, all warrants issued by the Predecessor Company
were cancelled as of the Effective Date. A Management Equity Incentive Plan was
approved under the Plan pursuant to 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-29
<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 June 30, 2001                        0       $0.00
Granted                                              2,975,000        4.17
Exercised                                                    0        0.00
Expired/forfeited                                            0        0.00
                                                    ----------       -----
Warrants outstanding at March 31, 2002               2,975,000        4.17
Granted                                                640,000        2.13
Exercised                                                    0        0.00
Expired/forfeited                                      (25,000)      (5.18)
                                                    ----------       -----
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
                                                    ==========       =====
Exercisable at March 31, 2004                        1,251,000       $4.04
                                                    ==========       =====
</Table>

     The following table summarizes information about options and warrants
outstanding at March 31, 2004:

<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 - $5.99    1,022,000      3.80        $ 3.05    1,022,000    $ 3.05
  $6.00 - $14.99     539,000      4.27        $ 6.56      539,000    $ 6.56
  $15.00 - $25.99    116,210      9.89        $18.44       66,210    $17.52
  $26.00 - $35.00    300,000      9.83        $30.63      200,000    $30.63
                   ---------                            ---------

                   1,977,210      5.20        $ 9.09    1,827,210    $ 7.62
                   =========                            =========
</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.

     Total shares of restricted stock outstanding at March 31, 2004 and 2003 was
518,938 and 0, respectively. At March 31, 2004, the amount of related deferred
compensation reflected in Stockholders' Equity in the consolidated balance sheet
was $8.3 million. An aggregate of 560,188 shares of restricted stock were
granted during the year ended March 31, 2004. The Company recorded amortization
of deferred compensation of approximately $1.0 million related to restricted
stock during the year ended March 31, 2004.

                                       F-30
<PAGE>
                             METAL MANAGEMENT, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

<Table>
<Caption>
FISCAL 2004:                                   JUNE 30      SEPT. 30     DEC. 31      MAR. 31
------------                                   -------      --------     -------      -------
<S>                                            <C>          <C>          <C>          <C>
Net sales                                      $226,982     $230,048     $257,715     $368,668
Gross profit                                     30,024       31,495       35,535       63,359
Non-cash and non-recurring expense(a)                 0            0            0        6,198
Net income                                        7,019        7,494       12,573       24,303
Basic earnings per share(e)                    $   0.35     $   0.36     $   0.59     $   1.11
Diluted earnings per share(e)                  $   0.33     $   0.34     $   0.54     $   1.02
</Table>

<Table>
<Caption>
FISCAL 2003:                                   JUNE 30      SEPT. 30     DEC. 31      MAR. 31
------------                                   -------      --------     -------      -------
<S>                                            <C>          <C>          <C>          <C>
Net sales                                      $193,468     $192,845     $169,546     $214,150
Gross profit                                     28,280       24,815       19,080       32,966
Non-cash and non-recurring income(a)                  0            0         (695)           0
Net income (loss)                                 7,337        6,355(b)      (272)(c)    7,081(d)
Basic earnings per share(e)                    $   0.36     $   0.31     $  (0.02)    $   0.35
Diluted earnings per share(e)                  $   0.36     $   0.31     $  (0.02)    $   0.34
</Table>

-------------------------
(a)  Reflects charges recorded for severance, impairment of fixed assets and
     facility abandonments. See Note 5 - Non-Cash and Non-Recurring Expense
     (Income).
(b)  Includes a $2.6 million pre-tax gain on the sale of excess real estate.
(c)  Includes a tax charge of $1.8 million to reflect positions taken upon
     filing the fiscal 2002 tax return in December 2002. As a result of the tax
     filing, the Company revised its estimates relating to emergence date tax
     assets that are available to offset taxable income.
(d)  Includes $1.5 million from the cash recovery of an impaired note.
(e)  The sum of the quarterly per share amounts will not equal per share amounts
     reported for the year-to-date period due to the changes in the number of
     weighted-average shares outstanding for each period.

                                       F-31
<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:
PREDECESSOR COMPANY:
    Three Months Ended June 30, 2001       $ 1,603       $1,058      $      0     $   (357)     $ 2,304
---------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY:
    Nine Months Ended March 31, 2002       $ 2,304       $2,031      $      0     $ (1,968)     $ 2,367
    Year Ended March 31, 2003              $ 2,367       $  365      $      0     $ (1,729)     $ 1,003
    Year Ended March 31, 2004              $ 1,003       $1,186      $      0     $   (539)     $ 1,650

TAX VALUATION ALLOWANCE:
PREDECESSOR COMPANY:
    Three Months Ended June 30, 2001       $87,393       $    0      $      0     $(22,881)     $64,512
---------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY:
    Nine Months Ended March 31, 2002       $64,512       $    0      $      0     $ (5,030)     $59,482
    Year Ended March 31, 2003              $59,482       $    0      $  2,634     $ (2,933)     $59,183
    Year Ended March 31, 2004              $59,183       $  168      $(57,835)    $      0      $ 1,516
</Table>

                                       F-32