<PAGE>

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

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

                                   FORM 10-Q

<Table>
<S>     <C>
[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
        SECURITIES EXCHANGE ACT OF 1934
        FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2005

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

                         COMMISSION FILE NUMBER 0-14836

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

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

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

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

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

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

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

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes  X      No ___

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Large accelerated filer ___        Accelerated filer  X         Non-accelerated
                                   filer ___

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ___     No  X

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

     As of January 18, 2006, the registrant had 25,657,614 shares of common
stock outstanding.
<PAGE>

                                     INDEX

<Table>
<Caption>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
PART I:    FINANCIAL INFORMATION

Item 1.    Financial Statements

           Consolidated Statements of Operations -- three and nine
             months
             ended December 31, 2005 and 2004 (unaudited)                  1

           Consolidated Balance Sheets -- December 31, 2005 and
             March 31, 2005 (unaudited)                                    2

           Consolidated Statements of Cash Flows -- nine months ended
             December 31, 2005 and 2004 (unaudited)                        3

           Consolidated Statement of Stockholders' Equity -- nine
             months
             ended December 31, 2005 (unaudited)                           4

           Notes to Consolidated Financial Statements (unaudited)          5

Item 2.    Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                    16

Item 3.    Quantitative and Qualitative Disclosures about Market Risk     26

Item 4.    Controls and Procedures                                        26

PART       OTHER INFORMATION
  II:

Item 1.    Legal Proceedings                                              28

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    29

Item 6.    Exhibits                                                       30

Signatures                                                                31
</Table>
<PAGE>

                         PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<Table>
<Caption>
                                           THREE MONTHS ENDED             NINE MONTHS ENDED
                                       ---------------------------   ---------------------------
                                       DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                           2005           2004           2005           2004
                                       ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>
NET SALES                               $  395,090     $  447,553    $ 1,155,025    $  1,239,736

OPERATING EXPENSES:
  Cost of sales (excluding
     depreciation)                         345,984        377,211      1,025,411       1,051,056
  General and administrative                20,469         19,955         58,711          56,951
  Depreciation and amortization              4,891          4,687         13,868          13,896
  Asset impairment charge                      995              0            995               0
                                        ----------     ----------    ------------   ------------
OPERATING INCOME                            22,751         45,700         56,040         117,833

Income from joint ventures                   2,964          3,911          6,466          11,848
Interest expense                              (418)          (649)        (1,176)         (2,883)
Interest and other income (expense),
  net                                          376            (47)         1,433              27
Loss on debt extinguishment                      0              0              0          (1,653)
                                        ----------     ----------    ------------   ------------

Income before income taxes                  25,673         48,915         62,763         125,172
Provision for income taxes                  10,327         19,433         25,050          49,112
                                        ----------     ----------    ------------   ------------
NET INCOME                              $   15,346     $   29,482    $    37,713    $     76,060
                                        ==========     ==========    ============   ============

EARNINGS PER SHARE:
  Basic                                 $     0.63     $     1.26    $      1.54    $       3.29
                                        ==========     ==========    ============   ============
  Diluted                               $     0.60     $     1.19    $      1.48    $       3.11
                                        ==========     ==========    ============   ============

CASH DIVIDENDS DECLARED PER SHARE       $    0.075     $    0.075    $     0.225    $      0.075
                                        ==========     ==========    ============   ============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING:
  Basic                                     24,556         23,329         24,429          23,088
                                        ==========     ==========    ============   ============
  Diluted                                   25,733         24,833         25,533          24,437
                                        ==========     ==========    ============   ============
</Table>

          See accompanying notes to consolidated financial statements

                                        1
<PAGE>

                             METAL MANAGEMENT, INC.
                          CONSOLIDATED BALANCE SHEETS
                           (unaudited, in thousands)

<Table>
<Caption>
                                                              DECEMBER 31,   MARCH 31,
                                                                  2005          2005
                                                              ------------   ----------
<S>                                                           <C>            <C>
                           ASSETS
Current assets:
  Cash and cash equivalents                                    $   44,319    $   52,821
  Short-term investments                                           30,335             0
  Accounts receivable, net                                        133,175       153,056
  Inventories                                                     111,516        96,345
  Deferred income taxes                                             5,135         5,103
  Prepaid expenses and other assets                                 8,838         4,193
                                                               ----------    ----------
     TOTAL CURRENT ASSETS                                         333,318       311,518

Property and equipment, net                                       121,951       111,253
Goodwill and other intangibles, net                                 2,674         2,591
Deferred income taxes, net                                          8,725        10,996
Investments in joint ventures                                      40,431        39,782
Other assets                                                        2,367         2,642
                                                               ----------    ----------
                                TOTAL ASSETS                   $  509,466    $  478,782
                                                               ==========    ==========


            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt                            $      376    $      367
  Accounts payable                                                110,666       122,666
  Income taxes payable                                              5,746         3,601
  Other accrued liabilities                                        29,757        31,686
                                                               ----------    ----------
     TOTAL CURRENT LIABILITIES                                    146,545       158,320

Long-term debt, less current portion                                1,951         2,164
Other liabilities                                                   4,832         5,682
                                                               ----------    ----------
     TOTAL LONG-TERM LIABILITIES                                    6,783         7,846

Stockholders' equity:
  Preferred stock                                                       0             0
  Common stock                                                        257           249
  Warrants                                                            233           395
  Additional paid-in capital                                      177,929       167,649
  Deferred compensation                                            (6,777)       (8,154)
  Accumulated other comprehensive loss                             (1,913)       (1,913)
  Retained earnings                                               186,409       154,390
                                                               ----------    ----------
     TOTAL STOCKHOLDERS' EQUITY                                   356,138       312,616
                                                               ----------    ----------
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $  509,466    $  478,782
                                                               ==========    ==========
</Table>

          See accompanying notes to consolidated financial statements

                                        2
<PAGE>

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

<Table>
<Caption>
                                                                   NINE MONTHS ENDED
                                                              ----------------------------
                                                              DECEMBER 31,   DECEMBER 31,
                                                                  2005           2004
                                                              ------------   -------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $    37,713    $      76,060
Adjustments to reconcile net income to cash flows from
  operating activities:
     Depreciation and amortization                                 13,868           13,896
     Deferred income taxes                                          2,350           29,003
     Income from joint ventures                                    (6,259)         (11,848)
     Distributions of earnings from joint ventures                  4,360                0
     Stock-based compensation expense                               5,545            3,299
     Asset impairment charge                                          995                0
     Amortization of debt issuance costs                              476              574
     Loss on debt extinguishment                                        0            1,653
     Tax benefit on exercise of stock options and warrants            170            4,732
     Other                                                          1,150            1,896
Changes in assets and liabilities:
     Accounts and other receivables                                19,502          (29,898)
     Inventories                                                  (15,171)         (56,415)
     Accounts payable                                             (15,525)           2,052
     Income taxes                                                     380            3,856
     Other accrued liabilities                                     (6,140)           3,371
     Other                                                         (4,392)          (4,667)
                                                              -----------    -------------
Net cash provided by operating activities                          39,022           37,564
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                             (22,065)          (9,295)
  Proceeds from sale of property and equipment                        798            1,232
  Purchases of short-term investments                            (116,620)               0
  Sales of short-term investments                                  86,285                0
  Distributions of capital from joint ventures                      1,250                0
  Other                                                                 0               30
                                                              -----------    -------------
Net cash used in investing activities                             (50,352)          (8,033)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuances of long-term debt                                     427,809        1,243,459
  Repayments of long-term debt                                   (428,013)      (1,272,533)
  Proceeds from exercise of stock options and warrants              5,678            3,068
  Cash dividends paid to stockholders                              (5,694)          (1,808)
  Other                                                             3,048           (1,470)
                                                              -----------    -------------
Net cash provided by (used in) financing activities                 2,828          (29,284)
                                                              -----------    -------------
Net increase (decrease) in cash and cash equivalents               (8,502)             247
Cash and cash equivalents at beginning of period                   52,821            1,155
                                                              -----------    -------------
Cash and cash equivalents at end of period                    $    44,319    $       1,402
                                                              ===========    =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash interest paid                                            $       690    $       2,370
                                                              ===========    =============
Cash income taxes paid                                        $    22,523    $      11,520
                                                              ===========    =============
</Table>

          See accompanying notes to consolidated financial statements

                                        3
<PAGE>

                             METAL MANAGEMENT, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                           (unaudited, in thousands)

<Table>
<Caption>
                                                                                         ACCUMULATED
                                                            ADDITIONAL     DEFERRED         OTHER
                                COMMON STOCK                 PAID-IN     STOCK-BASED    COMPREHENSIVE    RETAINED
                              SHARES   AMOUNT    WARRANTS    CAPITAL     COMPENSATION       LOSS         EARNINGS        TOTAL
<S>                           <C>      <C>       <C>        <C>          <C>            <C>             <C>           <C>
BALANCE AT MARCH 31, 2005     24,878   $  249    $   395    $ 167,649     $   (8,154)    $   (1,913)    $   154,390   $   312,616

Net income                        0         0          0            0              0              0          37,713        37,713
                                                                                                                      -----------
Total comprehensive income                                                                                                 37,713

Issuance of restricted stock
  (net of cancellations)        203         2          0        4,166         (4,168)             0               0             0

Exercise of stock options
  and
  warrants and related tax
  benefits                      572         6       (162)       6,004              0              0               0         5,848

Cash dividends paid to
  stockholders                    0         0          0            0              0              0          (5,694)       (5,694)

Other                             0         0          0          110              0              0               0           110

Stock-based compensation
  expense                         0         0          0            0          5,545              0               0         5,545
                              ------   -------   --------   ----------    ----------     ----------     -----------   -----------
BALANCE AT DECEMBER 31, 2005  25,653   $  257    $   233    $ 177,929     $   (6,777)    $   (1,913)    $   186,409   $   356,138
                              ======   =======   ========   ==========    ==========     ==========     ===========   ===========
</Table>

          See accompanying notes to consolidated financial statements

                                        4
<PAGE>

                             METAL MANAGEMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

Organization and Business
     Metal Management, Inc., a Delaware corporation, and its wholly owned
subsidiaries (the "Company") are principally engaged in the business of
collecting and processing ferrous and non-ferrous scrap metals. The Company
collects industrial scrap metal and obsolete scrap metal, processes it into
reusable forms, and supplies the recycled metals to its customers, including
electric-arc furnace mills, integrated steel mills, foundries, secondary
smelters and metals brokers. These services are provided through the Company's
recycling facilities located in 15 states. The Company's ferrous products
primarily include shredded, sheared, cold briquetted and bundled scrap metal,
and other purchased scrap metal, such as turnings, cast and broken furnace iron.
The Company also processes non-ferrous metals, including aluminum, stainless
steel and other nickel-bearing metals, copper, brass, titanium and
high-temperature alloys, using similar techniques and through application of
certain of the Company's proprietary technologies.

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

Basis of Presentation
     The accompanying unaudited consolidated financial statements of the Company
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). All significant intercompany accounts,
transactions and profits have been eliminated. Certain information related to
the Company's organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include normal recurring
adjustments) necessary to fairly state the financial position and the results of
operations for the periods presented.

     Operating results for interim periods are not necessarily indicative of the
results that can be expected for a full year. These interim financial statements
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended March 31, 2005.

Reclassifications
     Certain reclassifications have been made to prior year's financial
information to conform to the current year presentation. On the statements of
operations, stock-based compensation expense has been reclassified to general
and administrative expenses. Such reclassifications had no material effect on
the previously reported consolidated balance sheet, results of operations or
cash flows of the Company.

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.

                                        5
<PAGE>

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

<Table>
<Caption>
                            THREE MONTHS ENDED             NINE MONTHS ENDED
                        ---------------------------   ---------------------------
                        DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                            2005           2004           2005           2004
                        ------------   ------------   ------------   ------------
<S>                     <C>            <C>            <C>            <C>
Ferrous metals           $  255,731     $  335,847    $   747,482    $    901,296
Non-ferrous metals          116,177         92,790        344,650         284,818
Brokerage -- ferrous         15,437         13,804         42,925          37,725
Brokerage -- non-ferrous       1,513           428          5,040           1,780
Other                         6,232          4,684         14,928          14,117
                         ----------     ----------    ------------   ------------
          Net sales      $  395,090     $  447,553    $ 1,155,025    $  1,239,736
                         ==========     ==========    ============   ============
</Table>

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

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

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

                                        6
<PAGE>

NOTE 2 -- EARNINGS PER SHARE

     Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average common shares outstanding. Diluted EPS reflects the potential
dilution that could occur from the exercise of stock options and warrants and
from unvested restricted stock. The following is a reconciliation of the
numerators and denominators used in computing EPS (in thousands, except for per
share amounts):

<Table>
<Caption>
                                            THREE MONTHS ENDED             NINE MONTHS ENDED
                                        ---------------------------   ---------------------------
                                        DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                            2005           2004           2005           2004
                                        ------------   ------------   ------------   ------------
<S>                                     <C>            <C>            <C>            <C>
NUMERATOR:
Net income                               $  15,346      $  29,482      $  37,713      $  76,060
                                         =========      =========      =========      =========
DENOMINATOR:
Weighted average common shares
  outstanding, basic                        24,556         23,329         24,429         23,088
Incremental common shares attributable
  to dilutive stock options and
  warrants                                     786          1,275            806          1,210
Incremental common shares attributable
  to unvested restricted stock                 391            229            298            139
                                         ---------      ---------      ---------      ---------
Weighted average common shares
  outstanding, diluted                      25,733         24,833         25,533         24,437
                                         =========      =========      =========      =========
Basic income per share                   $    0.63      $    1.26      $    1.54      $    3.29
                                         =========      =========      =========      =========
Diluted income per share                 $    0.60      $    1.19      $    1.48      $    3.11
                                         =========      =========      =========      =========
</Table>

     For the three and nine months ended December 31, 2005, options and warrants
to purchase 305,000 and 345,000 weighted average shares of common stock,
respectively, were excluded from the diluted EPS calculation. For the three and
nine months ended December 31, 2004, options and warrants to purchase 305,000
and 399,699 weighted average shares of common stock, respectively, were excluded
from the diluted EPS calculation. These shares were excluded from the diluted
EPS calculation as the option and warrant exercise prices were greater than the
average market price of the Company's common stock for the respective periods
referenced above, and therefore their inclusion would have been anti-dilutive.

NOTE 3 -- STOCK-BASED COMPENSATION

     The Company accounts for stock-based compensation in accordance with APB
No. 25 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.

                                        7
<PAGE>

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

<Table>
<Caption>
                                           THREE MONTHS ENDED             NINE MONTHS ENDED
                                       ---------------------------   ---------------------------
                                       DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                           2005           2004           2005           2004
                                       ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>
Net income, as reported                $    15,346    $    29,482    $    37,713    $    76,060
  Add: Stock-based employee
     compensation expense included
     in reported net income, net of
     related tax effects                     1,305            680          3,332          2,006
  Deduct: Total stock-based
     compensation
     expense determined under the
     fair
     value method for all awards, net
     of
     related tax effects                    (1,547)        (1,094)        (4,002)        (3,210)
                                       -----------    -----------    -----------    -----------
PRO FORMA NET INCOME                   $    15,104    $    29,068    $    37,043    $    74,856
                                       ===========    ===========    ===========    ===========
Earnings per share:
     Basic -- as reported              $      0.63    $      1.26    $      1.54    $      3.29
                                       ===========    ===========    ===========    ===========
     Basic -- pro forma                $      0.62    $      1.25    $      1.52    $      3.24
                                       ===========    ===========    ===========    ===========
     Diluted -- as reported            $      0.60    $      1.19    $      1.48    $      3.11
                                       ===========    ===========    ===========    ===========
     Diluted -- pro forma              $      0.59    $      1.17    $      1.45    $      3.06
                                       ===========    ===========    ===========    ===========
</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. In the three months ended December 31, 2005, the
Company granted 25,000 shares of restricted stock, with a per share weighted
average fair value of $24.20. There were no restricted stock grants made in the
three months ended December 31, 2004. In the nine months ended December 31, 2005
and 2004, the Company granted 220,081 shares and 19,500 shares of restricted
stock, with a per share weighted average fair value of $19.77 and $17.69,
respectively. The Company recorded stock-based compensation expense related to
restricted stock of approximately $2.2 million and $1.1 million in the three
months ended December 31, 2005 and 2004, respectively, and $5.5 million and $3.3
million in the nine months ended December 31, 2005 and 2004, respectively.

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

<Table>
<Caption>
                                                               SHARES
                                                              ---------
<S>                                                           <C>
Restricted stock outstanding at March 31, 2005                  569,258
Granted                                                         220,081
Vested                                                           (4,500)
Cancelled                                                       (17,552)
                                                              ---------
Restricted stock outstanding at December 31, 2005               767,287
                                                              =========
</Table>

Employee Stock Purchase Plan
     On October 1, 2005, the Metal Management, Inc. Employee Stock Purchase Plan
(the "ESPP") became effective and 1.0 million shares of the Company's common
stock were reserved for issuance. Eligible employees may purchase a limited
number of shares of the Company's common stock at a discount of 15% of

                                        8
<PAGE>

the lesser of the fair market value of the Company's common stock at the
beginning of an offering period or the end of an offering period. The ESPP has
four quarterly offering periods per year.

NOTE 4 -- OTHER BALANCE SHEET INFORMATION

Short-term Investments
     All investments with original maturities of greater than 90 days are
accounted for in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company determines the
appropriate classification at the time of purchase. At December 31, 2005, the
Company had short-term investments of approximately $30.3 million, which mainly
consisted of investments in auction rate securities which are classified as
available-for-sale. Auction rate securities consist of tax-free bonds issued by
municipalities which mainly carry AAA ratings. Investments in auction rate
securities are recorded at cost, which approximates fair value due to their
variable interest rates which reset every 7 to 30 days. As a result, these
securities are classified as current assets. Despite the long-term nature of
their stated contractual maturities, there is a readily liquid market for these
securities. As a result, the Company had no cumulative gross unrealized holding
gains (losses) or gross realized gains (losses) from its short-term investments.
All income generated from these investments was recorded as other income.

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 at (in thousands):

<Table>
<Caption>
                                            DECEMBER 31,      MARCH 31,
                                                2005             2005
                                           ---------------   ------------
<S>                                        <C>               <C>
Ferrous metals                               $    59,639      $   58,215
Non-ferrous metals                                51,698          37,888
Other                                                179             242
                                             -----------      ----------
                                             $   111,516      $   96,345
                                             ===========      ==========
</Table>

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

<Table>
<Caption>
                                            DECEMBER 31,      MARCH 31,
                                                2005             2005
                                           ---------------   ------------
<S>                                        <C>               <C>
Land and improvements                        $    32,241     $    30,704
Buildings and improvements                        24,673          22,069
Operating machinery and equipment                112,146          98,978
Automobiles and trucks                            11,135          10,687
Computer equipment and software                    1,930           1,995
Furniture, fixtures and office equipment             783             790
Construction in progress                           9,242           6,709
                                             -----------     -----------
                                                 192,150         171,932
Less -- accumulated depreciation                 (70,199)        (60,679)
                                             -----------     -----------
                                             $   121,951     $   111,253
                                             ===========     ===========
</Table>

     At December 31, 2005, the Company recorded $4 million of construction in
progress and an offsetting liability in other accrued liabilities relating to
the construction of a stevedoring crane to be leased by the Company upon
completion. The Company expects the stevedoring crane to be delivered in April
2006. The Company is considered the owner of the stevedoring crane during its
construction and must record the amount paid to-date by the lessor for the
construction as an asset and liability.

     In the three months ended December 31, 2005, the Company completed a
strategy designed to improve the profitability of its Chicago-area scrap yards.
As a part of that strategy, a decision was made to consolidate

                                        9
<PAGE>

processing activities at the Chicago-area scrap yards. In the three months ended
December 31, 2005, the Company idled a shredder and a baler. The baler was sold
to a third party at approximately its net book value. The shredder is
categorized as held and used and its carrying value was written down to its
estimated fair value resulting in a $1.0 million asset impairment charge.

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

<Table>
<Caption>
                                          DECEMBER 31,    MARCH 31,
                                              2005          2005
                                          ------------   -----------
<S>                                       <C>            <C>
Accrued employee compensation and
  benefits                                 $  16,519      $  21,731
Accrued insurance                              5,063          4,324
Accrued real and personal property taxes       1,672          2,237
Accrued equipment purchase commitment          4,000              0
Other                                          2,503          3,394
                                           ---------      ---------
                                           $  29,757      $  31,686
                                           =========      =========
</Table>

Accrued Severance and Other Charges
     During the year ended March 31, 2004, the Company implemented a management
realignment that resulted in the recognition of $6.2 million of charges
consisting mainly of employee severance payments. As of December 31, 2005,
approximately $1.2 million is remaining to be paid, which is reflected in other
accrued liabilities. These payments were to be made in July 2005, however, the
Company is contesting these payments (see Note 8 -- Commitments and
Contingencies).

Income Taxes
     In November 2005, the Internal Revenue Service ("IRS") commenced an
examination of the Company's federal income tax return for fiscal 2004. At this
preliminary stage of the examination, no matters have been brought to the
Company's attention by the IRS, nor is the Company aware of any tax matters,
which would have a material adverse effect on its consolidated balance sheet,
results of operations or cash flows.

NOTE 5 -- GOODWILL AND OTHER INTANGIBLE ASSETS

     Goodwill and other intangible assets consist of the following at (in
thousands):

<Table>
<Caption>
                                             DECEMBER 31, 2005            MARCH 31, 2005
                                         -------------------------   -------------------------
                                           GROSS                       GROSS
                                          CARRYING    ACCUMULATED     CARRYING    ACCUMULATED
                                           AMOUNT     AMORTIZATION     AMOUNT     AMORTIZATION
                                           ------     ------------     ------     ------------
   <S>                                   <C>          <C>            <C>          <C>
   Other intangibles:
       Customer lists                    $    1,280    $    (277)    $    1,280    $    (213)
       Non-compete agreement                    290         (197)           290         (144)
       Pension intangible                        98            0             98            0
   Goodwill                                   1,480            0          1,280            0
                                         ----------    ---------     ----------    ---------
     Goodwill and other intangibles,
       net                               $    3,148    $    (474)    $    2,948    $    (357)
                                         ==========    =========     ==========    =========
</Table>

     The increase in goodwill in the nine months ended December 31, 2005 was due
to contingent consideration paid in connection with an acquisition.

     Total amortization expense for other intangibles in the three and nine
months ended December 31, 2005 was $39,000 and $117,000, respectively. Based on
the other intangible assets recorded as of December 31, 2005, annual
amortization expense for other intangible assets will be approximately $0.1
million for each of the fiscal years 2007 through 2011.

                                        10
<PAGE>

NOTE 6 -- LONG-TERM DEBT

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

<Table>
<Caption>
                                                         DECEMBER 31,    MARCH 31,
                                                             2005           2005
                                                         ------------   ------------
<S>                                                      <C>            <C>
Mortgage loan (interest rate of 5.50%) due January 2009   $    1,967     $    2,193
Other debt (including capital leases)                            360            338
                                                          ----------     ----------
                                                               2,327          2,531
Less -- current portion of long-term debt                       (376)          (367)
                                                          ----------     ----------
                                                          $    1,951     $    2,164
                                                          ==========     ==========
</Table>

Credit Agreement
     In June 2004, the Company entered into a $200 million secured four-year
revolving credit and letter of credit facility, as amended, with a maturity date
of June 28, 2008 (the "Credit Agreement"). As of December 31, 2005, the Company
had no outstanding borrowings under its Credit Agreement. Interest rates under
the Credit Agreement are based on variable rates tied to the prime rate plus a
margin or the London Interbank Offered Rate ("LIBOR") plus a margin. The margin
is based on the Company's leverage ratio (as defined in the Credit Agreement) as
determined for the trailing four fiscal quarters. Based on the Company's current
leverage ratio, LIBOR and prime rate margins are 125 basis points and 0 basis
points, respectively.

     Borrowings under the Credit Agreement are generally subject to borrowing
base limitations based upon a formula equal to 85% of eligible accounts
receivable plus the lesser of $65 million or 70% of eligible inventory.
Inventories cannot represent more than 40% of the total borrowing base. A
security interest in substantially all of the Company's assets and properties,
other than equipment, fixtures and real property, unless and until the average
excess availability for any two consecutive months is less than $10 million, has
been granted to the agent for the lenders as collateral against the Company's
obligations under the Credit Agreement. Pursuant to the Credit Agreement, the
Company pays a fee on the undrawn portion of the facility that is determined by
the leverage ratio. As of December 31, 2005, that fee was 0.25% per annum.

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

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

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

     On June 28, 2004, the Company paid off all balances under its previous
credit agreement with proceeds from its Credit Agreement. The Company recognized
a loss on debt extinguishment of $1.7 million associated

                                        11
<PAGE>

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

NOTE 7 -- EMPLOYEE BENEFIT PLANS

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

     The components of net pension costs were as follows (in thousands):

<Table>
<Caption>
                                     THREE MONTHS ENDED              NINE MONTHS ENDED
                                 ---------------------------    ---------------------------
                                 DECEMBER 31,   DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                                     2005           2004            2005           2004
                                 ------------   ------------    ------------   ------------
<S>                              <C>            <C>             <C>            <C>
Service cost                       $     41       $     33        $    124       $     98
Interest cost                           174            173             524            521
Expected return on plan assets         (174)          (158)           (523)          (473)
Amortization of prior service
  cost                                   24             24              71             71
Recognized net actuarial loss            49             34             147            100
                                   --------       --------        --------       --------
Net periodic benefit cost          $    114       $    106        $    343       $    317
                                   ========       ========        ========       ========
</Table>

     In the nine months ended December 31, 2005, the Company made cash
contributions of $0.7 million to its pension plans. Based on estimates provided
by its actuaries, the Company expects to make cash funding contributions to its
pension plans of approximately $0.2 million by March 31, 2006.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

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.

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

                                        12
<PAGE>

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

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

     The Company has engaged in settlement discussions with Joseph A. Schiavone
Corp., Schiavone and CTDEP regarding the possible characterization of the North
Haven Facility, and the subsequent remediation thereof should contamination be
present at concentrations that require remedial action. The Company is currently
working with an independent environmental consultant to 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.

     On April 29, 1998, Metal Management Midwest, Inc. ("MTLM-Midwest"), a
subsidiary of the Company, acquired substantially all of the operating assets of
138 Scrap, Inc. ("138 Scrap") that were used in its scrap metal recycling
business. Most of these assets were located at a recycling facility in
Riverdale, Illinois (the "Facility"). In early November 2003, MTLM-Midwest was
served with a Notice of Intent to Sue (the "Notice") by The Jeff Diver Group,
L.L.C., on behalf of the Village of Riverdale, alleging, among other things,
that the release or disposal of hazardous substances within the meaning of
CERCLA has occurred at an approximately 57 acre property in the Village of
Riverdale (which includes the 8.8 acre Facility that was leased by MTLM-Midwest
until December 31, 2003). The Notice indicates that the Village of Riverdale
intends to file suit against MTLM-Midwest (directly and as a successor to 138
Scrap) and numerous other third parties under one or both of CERCLA and the
Resource Conservation and Recovery Act. At this preliminary stage, the Company
cannot predict MTLM-Midwest's potential liability, if any, in connection
                                        13
<PAGE>

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.

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

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

     On August 22, 2005, the Occupational Safety and Health Administration
("OSHA") requested that MTLM-Aerospace conduct an internal investigation of a
recent accident. MTLM-Aerospace responded to this request in a timely manner.
OSHA subsequently determined to conduct its own investigation, following which
it issued citations to MTLM-Aerospace generally involving preventive maintenance
procedures and safety procedures and training. On January 23, 2006,
MTLM-Aerospace entered into an informal settlement agreement with OSHA pursuant
to which MTLM-Aerospace agreed, among other things, to pay an aggregate penalty
in the amount of $24,662.50, to maintain a formal preventive maintenance program
and to engage an engineer to develop certain procedures in which employees are
to be trained and monitored to ensure compliance.

     On November 24, 2005, OSHA commenced an investigation into a recent
accident at the Company's Newark facility that involved an employee fatality.
The Company is cooperating with OSHA's ongoing investigation. At this time, OSHA
has not taken any action with respect to this incident. At this preliminary
stage, the Company cannot predict the likelihood of any citations, the extent of
any penalties or other impact to the Company of such investigation.

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

     As a result of internal audits conducted by the Company, the Company
determined that current and former employees of certain business units engaged
in activities relating to cash payments to individual industrial account
suppliers of scrap metal that may have involved violations of federal and state
law. In May 2004, the Company voluntarily disclosed its concerns regarding such
cash payments to the U.S. Department of

                                        14
<PAGE>

Justice. The Board of Directors appointed a special committee, consisting of all
of its independent directors, to conduct an investigation of these activities.
The Company is cooperating with the U.S. Department of Justice. The Company
implemented policies to eliminate cash payments to industrial customers. During
the year ended March 31, 2004, such cash payments to industrial customers
represented approximately 0.7% of the Company's consolidated ferrous and
non-ferrous yard shipments. The fines and penalties under applicable statutes
contemplate qualitative as well as quantitative factors that are not readily
assessable at this stage of the investigation, but could be material. The
Company is not able to predict at this time the outcome of any actions by the
U.S. Department of Justice or other governmental authorities or their effect on
the Company, if any, and accordingly, the Company has not recorded any amounts
in the financial statements. The Company has incurred legal and other costs
related to this matter of approximately $2.3 million to date.

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

     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.

                                        15
<PAGE>

     This Form 10-Q includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Statements in this Form 10-Q which address
activities, events or developments that Metal Management, Inc. (herein, "Metal
Management," the "Company," "we," "us," "our" or other similar terms) expects or
anticipates will or may occur in the future, including such things as future
acquisitions (including the amount and nature thereof), business strategy,
expansion and growth of our business and operations, general economic and market
conditions and other such matters are forward-looking statements. Although we
believe the expectations expressed in such forward-looking statements are based
on reasonable assumptions within the bounds of our knowledge of our business, a
number of factors could cause actual results to differ materially from those
expressed in any forward-looking statements. These and other risks,
uncertainties and other factors are discussed under "Risk Factors" appearing in
our Annual Report on Form 10-K for the year ended March 31, 2005, as the same
may be amended from time to time.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included under Item 1 of
this Report. In addition, reference should be made to the audited consolidated
financial statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended March 31, 2005 ("Annual Report").

OVERVIEW
     We are one of the largest domestic scrap metal recycling companies with
approximately 40 facilities in 15 states. We enjoy leadership positions in many
major metropolitan markets, such as Birmingham, Chicago, Cleveland, Denver,
Hartford, Houston, Memphis, Newark, New Haven, Phoenix, Pittsburgh, Salt Lake
City, Toledo and Tucson. We have a 28.5% equity ownership position in Southern
Recycling, L.L.C. ("Southern"), one of the largest scrap metals recyclers in the
Gulf Coast region. We operate in one reportable segment, the scrap metal
recycling industry.

     Our operations primarily involve the collection and processing of ferrous
and non-ferrous scrap metals. We collect industrial scrap metal and obsolete
scrap metal, process it into reusable forms and supply the recycled metals to
our customers, including electric-arc furnace mills, integrated steel mills,
foundries, secondary smelters and metal brokers. In addition to buying,
processing and selling ferrous and non-ferrous scrap metals, we are periodically
retained as demolition contractors in certain of our large metropolitan markets
in which we dismantle obsolete machinery, buildings and other structures
containing metal and, in the process, collect both the ferrous and non-ferrous
metals from these sources. At certain of our locations adjacent to commercial
waterways, we provide stevedoring services. We also operate a bus dismantling
business combined with a bus replacement parts business in Newark, New Jersey.

     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.

RECENT EVENTS
     Southern operates approximately 15 scrap metals facilities in the Gulf
Coast region across the states of Louisiana, Mississippi, Alabama and Florida,
with its largest single processing facility in New Orleans. Due to Hurricane
Katrina in August 2005, Southern incurred damage at its facilities and suffered
disruptions to its operations in New Orleans and Gulfport, Mississippi. Southern
has recently relocated its headquarters from New Orleans to Covington,
Louisiana. Southern has advised us that it recently restarted its New Orleans
processing facility and that its overall operations are currently operating at
approximately 95% of capacity.

                                        16
<PAGE>

RESULTS OF OPERATIONS
     After achieving record results in fiscal 2005, our results for the three
and nine months ended December 31, 2005 were impacted by extreme price
volatility in ferrous scrap metals. In the three months ended June 30, 2005, we
experienced lower domestic demand for ferrous scrap metals as a result of a
buildup in steel mill raw material inventories exacerbated by slower demand for
finished steel. In the months of May and June 2005, prices for certain grades of
ferrous scrap declined by more than $100 per ton. As a result, ferrous scrap
metal prices declined and we experienced lower ferrous scrap metal margins in
the three months ended June 30, 2005. Ferrous scrap metal prices rebounded in
August and September 2005 and our metal margins improved accordingly in the
three months ended September 30, 2005. Ferrous prices fluctuated greatly again
in the three months ended December 31, 2005, with factory bundle prices
declining by approximately $73 per ton in October 2005 before increasing by
approximately $53 per ton in November 2005. Factory bundle prices were largely
unchanged in December 2005 compared to November 2005. Extreme volatility in
ferrous scrap metal prices in calendar 2005 has caused significant fluctuations
in our profitability and rendered the business more complex to manage.

     The volatility in ferrous scrap metal prices 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) declined from $217 per ton in April 2005 to approximately $125 per ton in
June 2005 and then recovered to $241 per ton in September 2005. The average
price for #1 Heavy Melting Steel Scrap -- Chicago declined again in October 2005
but recovered to $242 per ton in December 2005.

     Our non-ferrous businesses continued to perform well in the three and nine
months ended December 31, 2005, primarily due to strong demand from our
consumers in the aerospace industry. This also resulted in higher pricing for
high-temperature alloys and nickel-based metals and alloys, which resulted in
higher sales and material margins and also increased requirements for
investments in non-ferrous inventories. As of December 31, 2005 investments in
inventory at our non-ferrous operations were nearly $52 million, primarily
because of increasing prices.

     Although our results of operations in the three and nine months ended
December 31, 2005 demonstrated lower profitability compared to the three and
nine months ended December 31, 2004, our objective of turning our inventories
rather than speculating on commodity prices allowed us to remain profitable,
despite lower ferrous metal prices in fiscal 2006 compared to fiscal 2005.

                                        17
<PAGE>

     The following table sets forth selected statement of operations and sales
volume data for the three and nine months ended December 31, 2005 and 2004.

STATEMENT OF OPERATIONS SELECTED ITEMS ($ IN THOUSANDS)

<Table>
<Caption>
                                THREE MONTHS ENDED DECEMBER 31,         NINE MONTHS ENDED DECEMBER 31,
                              -----------------------------------   ---------------------------------------
                                2005       %       2004       %        2005        %        2004        %
                                ----       -       ----       -        ----        -        ----        -
<S>                           <C>        <C>     <C>        <C>     <C>          <C>     <C>          <C>
SALES BY COMMODITY:
  Ferrous metals              $255,731    64.7%  $335,847    75.0%  $  747,482    64.7%  $  901,296    72.7%
  Non-ferrous metals           116,177    29.4     92,790    20.7      344,650    29.8      284,818    23.0
  Brokerage - ferrous           15,437     3.9     13,804     3.1       42,925     3.7       37,725     3.0
  Brokerage - non-ferrous        1,513     0.4        428     0.1        5,040     0.4        1,780     0.2
  Other                          6,232     1.6      4,684     1.1       14,928     1.4       14,117     1.1
                              --------   -----   --------   -----   ----------   -----   ----------   -----
Net sales                      395,090   100.0%   447,553   100.0%   1,155,025   100.0%   1,239,736   100.0%
Cost of sales (excluding
  depreciation)                345,984    87.6    377,211    84.3    1,025,411    88.8    1,051,056    84.8
General and administrative
  expense                       20,469     5.2     19,955     4.5       58,711     5.1       56,951     4.6
Depreciation and
  amortization expense           4,891     1.2      4,687     1.0       13,868     1.2       13,896     1.1
Asset impairment charge            995     0.3          0     0.0          995     0.1            0     0.0
Income from joint ventures       2,964     0.8      3,911     0.9        6,466     0.6       11,848     1.0
Interest expense                  (418)    0.1       (649)    0.1       (1,176)    0.1       (2,883)    0.2
Interest and other income
  (expense), net                   376     0.1        (47)    0.0        1,433     0.1           27     0.0
Loss on debt extinguishment          0     0.0          0     0.0            0     0.0       (1,653)    0.1
Provision for income taxes      10,327     2.6     19,433     4.4       25,050     2.1       49,112     4.0
                              --------   -----   --------   -----   ----------   -----   ----------   -----
Net income                    $ 15,346     3.9%  $ 29,482     6.6%  $   37,713     3.3%  $   76,060     6.2%
                              ========   =====   ========   =====   ==========   =====   ==========   =====
</Table>

<Table>
<Caption>
SALES VOLUME BY COMMODITY         2005               2004                2005                 2004
(IN THOUSANDS):                   ----               ----                ----                 ----
<S>                             <C>        <C>     <C>        <C>     <C>          <C>     <C>          <C>
  Ferrous metals (tons)            1,060              1,129                3,210                3,433
  Non-ferrous metals (lbs.)      124,334            115,362              355,784              367,801
  Brokerage - ferrous (tons)          69                 51                  207                  150
  Brokerage - non-ferrous
    (lbs.)                         1,478                551                4,720                1,994
</Table>

NET SALES
     Consolidated net sales decreased by $52.5 million (11.7%) and $84.7 million
(6.8%) to $395.1 million and $1.16 billion in the three and nine months ended
December 31, 2005, respectively, compared to consolidated net sales of $447.6
million and $1.24 billion in the three and nine months ended December 31, 2004,
respectively. The decrease in consolidated net sales was primarily due to lower
average ferrous selling prices and lower unit shipments of ferrous products.

Ferrous Sales
     Ferrous sales decreased by $80.1 million (23.9%) and $153.8 million (17.1%)
to $255.7 million and $747.5 million in the three and nine months ended December
31, 2005, respectively, compared to ferrous sales of $335.8 million and $901.3
million in the three and nine months ended December 31, 2004, respectively. The
decrease in the three months ended December 31, 2005 was due to lower average
selling prices which decreased by $56 per ton (18.9%) to $241 per ton, and sales
volumes which declined by 69,000 tons (6.1%). The decrease in the nine months
ended December 31, 2005 was due to lower average selling prices, which decreased
by $30 per ton (11.3%) to $233 per ton, and sales volumes which declined by
223,000 tons (6.5%). Lower unit shipments of ferrous products reflected both
slower inbound activity from suppliers, due to lower prices, and generally
weaker demand from consumers compared to the three and nine months ended
December 31, 2004.

                                        18
<PAGE>

     The decrease in selling prices for ferrous scrap is evident in data
published by AMM. According to AMM data, the average price for #1 Heavy Melting
Steel Scrap -- Chicago was approximately $231 per ton and $198 per ton in the
three and nine months ended December 31, 2005, respectively, compared to $236
per ton and $221 per ton in the three and nine months ended December 31, 2004,
respectively.

Non-ferrous Sales
     Non-ferrous sales increased by $23.4 million (25.2%) and $59.9 million
(21.0%) to $116.2 million and $344.7 million in the three and nine months ended
December 31, 2005, respectively, compared to non-ferrous sales of $92.8 million
and $284.8 million in the three and nine months ended December 31, 2004,
respectively. The increase was primarily due to higher average selling prices.
In the three and nine months ended December 31, 2005, the average selling price
for non-ferrous products increased by approximately $0.13 per pound (16.3%) to
$0.93 per pound and $0.19 per pound (24.7%) to $0.97 per pound, respectively.
Non-ferrous sales volumes increased by 9.0 million pounds (7.8%) in the three
months ended December 31, 2005, but decreased by 12.0 million pounds (3.3%)
compared to the nine months ended December 31, 2004. Non-ferrous sales volumes
increased in the three months ended December 31, 2005 primarily due to an
increase in stainless steel shipments of approximately 8.7 million pounds
(17.2%), while sales volumes of stainless steel decreased by approximately 8.1
million pounds (4.9%) in the nine months ended December 31, 2005.

     Our non-ferrous operations have benefited from rising prices for copper,
aluminum and stainless steel (nickel base metal), with the exception of average
nickel prices which declined in the three months ended December 31, 2005. The
increase in non-ferrous prices is evident in data published by the London Metals
Exchange ("LME") and COMEX. According to COMEX data, average prices for copper
were 44% and 34% higher in the three and nine months ended December 31, 2005,
respectively, compared to the three and nine months ended December 31, 2004.
According to LME data, average nickel prices were 10% lower in the three months
ended December 31, 2005 while average nickel prices were 8% higher in the nine
months ended December 31, 2005. Average prices for aluminum were 13% and 9%
higher in the three and nine months ended December 31, 2005, respectively,
compared to the three and nine months ended December 31, 2004. We believe
non-ferrous prices are strong due, in part, to increases in industrial
production and demand from industrializing China.

     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, and the selling prices for these metals, will impact our non-ferrous sales
as prices for these metals are generally higher than other non-ferrous metals.

Brokerage Sales
     Brokerage ferrous sales increased by $1.6 million (11.8%) and $5.2 million
(13.8%) to $15.4 million and $42.9 million in the three and nine months ended
December 31, 2005, respectively, compared to brokerage ferrous sales of $13.8
million and $37.7 million in the three and nine months ended December 31, 2004,
respectively. The increase in brokerage ferrous sales was the result of higher
brokered ferrous sales volumes offset, in part, by lower average selling prices.
Brokered ferrous volumes increased by 18,000 tons (35.3%) and 57,000 tons
(38.0%) in the three and nine months ended December 31, 2005, respectively,
compared to the three and nine months ended December 31, 2004.

     Brokerage ferrous sales increased despite $47 per ton (17.3%) and $44 per
ton (17.5%) declines in average selling prices for brokered ferrous metals in
the three and nine months ended December 31, 2005, respectively, compared to the
three and nine months ended December 31, 2004. The average selling price for
brokered ferrous 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 ferrous scrap metal are generally
associated with higher unit prices.

COST OF SALES (EXCLUDING DEPRECIATION)
     Cost of sales decreased by $31.2 million (8.3%) and $25.6 million (2.4%) to
$346.0 million and $1.02 billion in the three and nine months ended December 31,
2005, respectively, compared to cost of sales of

                                        19
<PAGE>

$377.2 million and $1.05 billion in the three and nine months ended December 31,
2004, respectively. The decrease is primarily due to lower material costs
related to ferrous metals. The decrease in the nine months ended December 31,
2005 was partially offset by higher freight and processing costs. Freight costs
were higher due to increases in freight rates resulting from higher fuel costs
and increased export activity.

     Cost of sales represented approximately 88% and 89% of sales in the three
and nine months ended December 31, 2005, respectively, compared to 84% and 85%
of sales in the three and nine months ended December 31, 2004, respectively. The
increase in cost of sales percentage was due to processing costs which did not
decline commensurately with the decline in sales.

GENERAL AND ADMINISTRATIVE EXPENSE
     General and administrative expense was $20.5 million and $58.7 million in
the three and nine months ended December 31, 2005, respectively, compared to
general and administrative expense of $20.0 million and $57.0 million in the
three and nine months ended December 31, 2004, respectively. The increase in the
three months ended December 31, 2005 was due to higher stock-based compensation
expense which increased by $1.1 million from the three months ended December 31,
2004.

     The increase in the nine months ended December 31, 2005 is mainly due to
higher compensation expense partially offset by lower professional fees. The
increase in compensation expense was primarily due to higher salaries, as a
result of an increase in headcount, and higher stock-based compensation expense
which increased by $2.2 million from the nine months ended December 31, 2004.
Professional fees were $0.8 million lower in the nine months ended December 31,
2005 compared to the nine months ended December 31, 2004. In the nine months
ended December 31, 2004, we incurred legal fees and related costs of $2.1
million as a result of the investigations performed in connection with our
voluntary disclosure to the U.S. Department of Justice regarding cash payments
made to certain industrial account suppliers (see the section entitled "Legal
Proceedings" in Part II of this report).

DEPRECIATION AND AMORTIZATION EXPENSE
     Depreciation and amortization expense was $4.9 million and $13.9 million in
the three and nine months ended December 31, 2005, respectively, compared to
depreciation and amortization expense of $4.7 million and $13.9 million in the
three and nine months ended December 31, 2004, respectively. The increase in
depreciation expense in the three months ended December 31, 2005 was due to an
increase in capital expenditures.

ASSET IMPAIRMENT CHARGE
     In the three months ended December 31, 2005, we completed a strategy
designed to improve the profitability of our Chicago-area scrap yards. As a part
of that strategy, a decision was made to consolidate processing activities at
our Chicago-area scrap yards which resulted in a shredder and baler being idled.
The baler was sold to a third party for approximately its net book value. The
idled shredder is categorized as held and used and its carrying value was
written down to its estimated fair value resulting in an asset impairment charge
of approximately $1.0 million in the three months ended December 31, 2005.

INCOME FROM JOINT VENTURES
     Income from joint ventures was $3.0 million and $6.5 million in the three
and nine months ended December 31, 2005, respectively, compared to income from
joint ventures of $3.9 million and $11.8 million in the three and nine months
ended December 31, 2004, respectively. Income from joint ventures primarily
represents our 28.5% share of income from Southern and our 50% share of earnings
from three other joint ventures. The decline in income from joint ventures is
primarily attributable to business interruptions at Southern as a result of
Hurricane Katrina in August 2005, relatively weaker demand and prices for
ferrous scrap metals in the nine months ended December 31, 2005 and losses
incurred by our Metal Management Nashville, LLC ("Nashville") joint venture.

     In the three months ended December 31, 2005, Southern completed its
insurance claim adjustment process related to damages from Hurricane Katrina.
Our share of earnings arising from the claims adjustment

                                        20
<PAGE>

process at Southern in the three months ended December 31, 2005 increased income
from joint ventures by $1.8 million. Losses incurred at Nashville are primarily
associated with start-up expenses that continue to be incurred during the
installation of a mega-shredder and costs related to a contract termination. We
expect the mega-shredder to be operational in Nashville in June 2006.

     The decline in income from Southern and Nashville was mitigated, to some
degree, by income from our joint venture in Albany, New York which commenced
operations in February 2005 and is performing well.

INTEREST EXPENSE
     Interest expense was $0.4 million and $1.2 million in the three and nine
months ended December 31, 2005, respectively, compared to interest expense of
$0.6 million and $2.9 million in the three and nine months ended December 31,
2004, respectively. The decrease in interest expense was a result of lower
borrowings. Average debt was approximately $2.4 million in the three and nine
months ended December 31, 2005 compared to average debt of approximately $25.9
million and $46.7 million in the three and nine months ended December 31, 2004,
respectively. Our interest expense primarily consists of amortization of
deferred financing costs, unused line fees under our Credit Agreement and
interest on mortgage loans.

INTEREST AND OTHER INCOME (EXPENSE), NET
     Interest and other income recognized in the three and nine months ended
December 31, 2005 was $0.4 million and $1.4 million, respectively. As a result
of our cash balances and short-term investments, our interest and dividend
income recognized has increased. In the three and nine months ended December 31,
2004, we did not have any cash balances earning interest nor did we have any
short-term investments. In addition, in the nine months ended December 31, 2005,
we received insurance reimbursements of $0.7 million.

LOSS ON DEBT EXTINGUISHMENT
     In the nine months ended December 31, 2004, we recognized a loss on debt
extinguishment of $1.7 million associated with the repayment of our previous
credit agreement with proceeds from the Credit Agreement. This amount
represented a write-off of unamortized deferred financing costs associated with
the previous credit agreement.

PROVISION FOR INCOME TAXES
     In the three and nine months ended December 31, 2005, we recognized income
tax expense of $10.3 million and $25.1 million, respectively, resulting in an
effective tax rate of approximately 40%. In the three and nine months ended
December 31, 2004, our income tax expense was $19.4 million and $49.1 million,
respectively, resulting in an effective tax rate of 39.7% and 39.2%,
respectively. The effective tax rate differs from the federal statutory rate
mainly due to state taxes and permanent tax items.

     In November 2005, the Internal Revenue Service ("IRS") commenced an
examination of our federal income tax return for fiscal 2004. At this
preliminary stage of the examination, no matters have been brought to our
attention by the IRS, nor are we aware of any tax matters, which would have a
material adverse effect on our consolidated balance sheet, results of operations
or cash flows.

NET INCOME
     Net income was $15.3 million and $37.7 million in the three and nine months
ended December 31, 2005, respectively, compared to net income of $29.5 million
and $76.1 million in the three and nine months ended December 31, 2004,
respectively. Net income decreased due to lower ferrous material margins
attributable to weaker and volatile ferrous metal market conditions, lower unit
shipments, and lower income from joint ventures, partially offset by lower
interest expense.

LIQUIDITY AND CAPITAL RESOURCES
     Our financial condition remained strong in the nine months ended December
31, 2005. At December 31, 2005, our total indebtedness was $2.3 million
(primarily a single property real estate mortgage). We had no borrowings
outstanding on our Credit Agreement and had cash, cash equivalents and
short-term investments

                                        21
<PAGE>

of $74.7 million at December 31, 2005. Our primary source of working capital is
collections from customers supplemented by financing under our Credit Agreement.

Cash Flows
     Net cash provided by operating activities was $39.0 million in the nine
months ended December 31, 2005 compared to $37.6 million in the nine months
ended December 31, 2004. Although net income was lower, cash from operating
activities increased due to lower investments in working capital compared to the
nine months ended December 31, 2004. Cash provided by operating activities in
the nine months ended December 31, 2005 was a result of cash generated from net
income, adjusted for non-cash items, of $60.3 million that was offset by a $21.3
million increase in working capital. The working capital increase was mainly due
to higher inventories ($15.2 million) and lower accounts payable ($15.5 million)
offset, in part, by lower accounts receivable ($19.5 million). Inventories
increased due to higher levels of both ferrous and non-ferrous inventory on hand
at December 31, 2005 as compared to March 31, 2005 and higher prices for non-
ferrous scrap metals. Accounts payable decreased due to lower purchase prices
for ferrous scrap metals. Accounts receivable decreased due to lower sales in
December 2005 as compared to March 2005 and due to improved cash collections.

     Net cash used in investing activities was $50.4 million in the nine months
ended December 31, 2005 compared to $8.0 million in the nine months ended
December 31, 2004. The increase was due to higher capital expenditures and the
net purchase of $30.3 million of short-term investments. Our capital
expenditures in the current fiscal year are higher due to investments we are
making in our operations to improve operational efficiency and create
competitive advantages.

     Net cash provided by financing activities was $2.8 million in the nine
months ended December 31, 2005 compared to net cash used in financing activities
of $29.3 million in the nine months ended December 31, 2004. In the nine months
ended December 31, 2004, cash flows from operating activities was used to repay
amounts outstanding under our Credit Agreement. In the nine months ended
December 31, 2005, we paid cash dividends of $5.7 million and received $5.7
million from the exercise of stock options and warrants.

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

     Borrowings under the Credit Agreement are generally subject to borrowing
base limitations based upon a formula equal to 85% of eligible accounts
receivable plus the lesser of $65 million or 70% of eligible inventory.
Inventories cannot represent more than 40% of the total borrowing base. A
security interest in substantially all of our assets and properties, other than
equipment, fixtures and real property, unless and until the average excess
availability for any two consecutive months is less than $10 million, has been
granted to the agent for the lenders as collateral against our obligations under
the Credit Agreement. Pursuant to the Credit Agreement, we pay a fee on the
undrawn portion of the facility that is determined by the leverage ratio. As of
December 31, 2005, that fee was 0.25% per annum.

     Under the Credit Agreement, we are required to satisfy specified financial
covenants, including a maximum leverage ratio of 2.50 to 1.00, a minimum
consolidated fixed charge coverage ratio of 1.50 to 1.00 and a minimum tangible
net worth of not less than the sum of $110 million plus 25% of consolidated net
income earned in each fiscal quarter. The leverage ratio and consolidated fixed
charge coverage ratio are tested for the twelve-month period ending each fiscal
quarter. The Credit Agreement also limits capital expenditures to $20 million
for the twelve-month period ending each fiscal quarter. An amendment to our
Credit Agreement permits capital expenditures of up to $40 million in fiscal
2006. The Credit Agreement contains restrictions which, among other things,
limit our ability to (i) incur additional indebtedness; (ii) pay dividends under
certain conditions; (iii) enter into transactions with affiliates; (iv) enter
into certain asset sales;
                                        22
<PAGE>

(v) engage in certain acquisitions, investments, mergers and consolidations;
(vi) prepay certain other indebtedness; (vii) create liens and encumbrances on
our assets; and (viii) engage in other matters customarily restricted in such
agreements. As of December 31, 2005, we were in compliance with all financial
covenants contained in the Credit Agreement. As of January 19, 2006, we had no
outstanding borrowings under the Credit Agreement, and had undrawn availability
of approximately $173 million.

Future Capital Requirements
     We expect to fund our working capital needs, dividend payments and capital
expenditures over the next twelve months with cash generated from operations,
supplemented by undrawn borrowing availability under the Credit Agreement. Our
future cash needs will be driven by working capital requirements, planned
capital expenditures and acquisition objectives, should attractive acquisition
opportunities present themselves.

     Capital expenditures were $22.1 million in the nine months ended December
31, 2005. Consistent with the plan that we announced at the start of the fiscal
year, and depending on the timing of a planned land purchase that would expand
an existing facility, we expect that our total capital expenditures in fiscal
2006 will be between $30 and $40 million.

     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 83 operating leases for equipment which
would have cost approximately $24.6 million to purchase. These operating leases
are attractive to us since the implied interest rates are lower than interest
rates under our Credit Agreement. We expect to selectively use operating leases
for new material handling equipment or trucks required by our operations.

     In the nine months ended December 31, 2005, we received $5.6 million from
the exercise of Series A Warrants. As of December 31, 2005, we had 379,237
Series A Warrants outstanding. The exercise price of the Series A Warrants is
$21.19 per warrant and each warrant represents the right to purchase two shares
of common stock. The Series A Warrants expire on June 29, 2006. If all the
Series A Warrants are exercised, we would receive cash proceeds of approximately
$8.0 million over the next six months.

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

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

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

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

                                        23
<PAGE>

     The following table sets forth our known contractual obligations as of
December 31, 2005, 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                       $    2,626   $      495   $      921    $    1,210   $        0
Operating leases                   60,108       11,506       19,384        11,641       17,577
Other contractual
  obligations*                      2,871        2,471          400             0            0
                               ----------   ----------   ----------    ----------   ----------
Total contractual cash
  obligations                  $   65,605   $   14,472   $   20,705    $   12,851   $   17,577
                               ==========   ==========   ==========    ==========   ==========
</Table>

      * Includes $1.2 million of employee termination benefits scheduled for
        payment in July 2005 for which we are contesting the payments (see
        "Legal Proceedings" under Part II, Item 1 of this report).

Other Commitments
     We are required to make contributions to our defined benefit pension plans.
These contributions are required under the minimum funding requirements of the
Employee Retirement Income Security Act (ERISA). However, due to uncertainties
regarding significant assumptions involved in estimating future required
contributions, such as pension plan benefit levels, interest rate levels and the
amount of pension plan asset returns, we are not able to reasonably estimate the
amount of future required contributions beyond fiscal 2006. Our minimum required
pension contributions for fiscal 2006 are approximately $0.9 million, of which
we paid $0.7 million in the nine months ended December 31, 2005.

     At December 31, 2005, we recorded $4.0 million of construction in progress
and an offsetting liability relating to the construction of a stevedoring crane
which we committed to lease upon completion. We expect the stevedoring crane to
be delivered in April 2006. We are considered the owner of the stevedoring crane
during its construction.

     We also enter into letters of credit in the ordinary course of operating
and financing activities. As of January 19, 2006, we had outstanding letters of
credit of $6.2 million, much of which is securing insurance policies.

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

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

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

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

                                        24
<PAGE>

December 31, 2005, we had short-term investments of approximately $30.3 million,
which mainly consisted of investments in auction rate securities which are
classified as available-for-sale. Auction rate securities consist of tax-free
bonds issued by municipalities which mainly carry AAA ratings. Investments in
auction rate securities are recorded at cost, which approximates fair value due
to their variable interest rates which reset every 7 to 30 days. As a result,
these securities are classified as current assets. Despite the long-term nature
of their stated contractual maturities, there is a readily liquid market for
these securities. As a result, we had no cumulative gross unrealized holding
gains (losses) or gross realized gains (losses) from our short-term investments.
All income generated from these investments was recorded as dividend income.

Accounts Receivable and Allowance for Uncollectible Accounts Receivable
     Accounts receivable consist primarily of amounts due from customers from
product and brokered sales. The allowance for uncollectible accounts receivable
totaled $1.8 million and $2.7 million at December 31, 2005 and March 31, 2005,
respectively. Our determination of the allowance for uncollectible accounts
receivable includes a number of factors, including the age of the balance, past
experience with the customer account, changes in collection patterns and general
industry conditions.

Inventory
     Our inventories primarily consist of ferrous and non-ferrous scrap metals
and are valued at the lower of average purchased cost or market. Quantities of
inventories are determined based on our inventory systems and are subject to
periodic physical verification using estimation techniques including
observation, weighing and other industry methods. As indicated in our Annual
Report under the section entitled "Risk Factors -- Prices of commodities we own
may be volatile and markets are competitive," we are exposed to risks associated
with fluctuations in the market price for both ferrous and non-ferrous metals,
which are at times volatile. We attempt to mitigate this risk by seeking to
rapidly turn our inventories.

Long-lived Assets
     We assess the impairment of long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine if an
impairment of such asset is necessary. The effect of any impairment would be the
recognition of a loss representing the difference between the fair value of such
asset and its carrying value.

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

Income Taxes
     Income taxes are accounted for under the asset and liability method
prescribed by SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

Contingencies
     We record accruals for estimated liabilities, which include environmental
remediation, potential legal claims and IBNR claims. A loss contingency is
accrued when our assessment indicates that it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated. Our
estimates are

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<PAGE>

based upon currently available facts and presently enacted laws and regulations.
These estimated liabilities are subject to revision in future periods based on
actual costs or new information.

     The above listing is not intended to be a comprehensive list of all of our
accounting policies. Please refer to our Annual Report, which contains
accounting policies and other disclosures required by generally accepted
accounting principles.

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to financial risk resulting from fluctuations in interest
rates and commodity prices. We seek to minimize these risks through regular
operating and financing activities. We do not use derivative financial
instruments. Refer to Item 7A of the Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

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

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

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<PAGE>

the information generated for use in this report. Based upon the controls
evaluation, our CEO and our CFO have concluded that our disclosure controls and
procedures were effective at the reasonable assurance level, in enabling us to
record, process, summarize, and report information required to be included in
our periodic SEC filings within the required time period, and that such
information is accumulated and communicated to our management, including our CEO
and CFO, as appropriate, to allow for timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting.
     As reported in the Company's Form 10-Q/A for the quarter ended June 30,
2005, as of June 30, 2005, the Company reported a material weakness relating to
controls over the reporting of cash distributions of earnings from joint
ventures in the cash flow category required by generally accepted accounting
principles. During the quarter ended December 31, 2005, the Company fully
implemented procedures to address the issue reported in the June 2005 Form
10-Q/A, including a review of the classification requirements of each component
line item and the individual elements that comprise each line item of the
statement of cash flows in accordance with Statement of Financial Accounting
Standards No. 95, "Statement of Cash Flows."

     Other than the actions noted above, there have been no changes in our
internal control over financial reporting during the three months ended December
31, 2005 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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 quarterly report is the
information concerning the controls evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.

Limitations on the Effectiveness of Controls.
     Our management, including our CEO and the CFO, does not expect that our
disclosure controls and procedures or our internal control over financial
reporting will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of disclosure controls and procedures and internal control over financial
reporting 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.

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<PAGE>

                           PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

     On August 22, 2005, the Occupational Safety and Health Administration
("OSHA") requested that MTLM-Aerospace conduct an internal investigation of a
recent accident. MTLM-Aerospace responded to this request in a timely manner.
OSHA subsequently determined to conduct its own investigation, following which
it issued citations to MTLM-Aerospace generally involving preventive maintenance
procedures and safety procedures and training. On January 23, 2006,
MTLM-Aerospace entered into an informal settlement agreement with OSHA pursuant
to which MTLM-Aerospace agreed, among other things, to pay an aggregate penalty
in the amount of $24,662.50, to maintain a formal preventive maintenance program
and to engage an engineer to develop certain procedures in which employees are
to be trained and monitored to ensure compliance.

     On November 24, 2005, OSHA commenced an investigation into a recent
accident at the Company's Newark facility that involved an employee fatality.
The Company is cooperating with OSHA's ongoing investigation. At this time, OSHA
has not taken any action with respect to this incident. At this preliminary
stage, the Company cannot predict the likelihood of any citations, the extent of
any penalties or other impact to the Company of such investigation.

     As a result of internal audits conducted by the Company, the Company
determined that current and former employees of certain business units engaged
in activities relating to cash payments to individual industrial account
suppliers of scrap metal that may have involved violations of federal and state
law. In May 2004, the Company voluntarily disclosed its concerns regarding such
cash payments to the U.S. Department of Justice. The Board of Directors
appointed a special committee, consisting of all of its independent directors,
to conduct an investigation of these activities. The Company is cooperating with
the U.S. Department of Justice. The Company implemented policies to eliminate
cash payments to industrial customers. During the year ended March 31, 2004,
such cash payments to industrial customers represented approximately 0.7% of the
Company's consolidated ferrous and non-ferrous yard shipments. The fines and
penalties under applicable statutes contemplate qualitative as well as
quantitative factors that are not readily assessable at this stage of the
investigation, but could be material. The Company is not able to predict at this
time the outcome of any actions by the U.S. Department of Justice or other
governmental authorities or their effect on the Company, if any, and
accordingly, the Company has not recorded any amounts in the financial
statements. The Company has incurred legal and other costs related to this
matter of approximately $2.3 million to date.

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<PAGE>

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

     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. Please refer to Part I, Item 3 of the Annual Report for
a description of other litigation in which we are currently involved.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     In the three months ended December 31, 2005, we sold 450,486 shares of our
common stock pursuant to exercise of Series A Warrants that were issued to our
predecessor company shareholders in connection with our emergence from
bankruptcy on June 29, 2001. We received proceeds of approximately $4.8 million
from these sales and used the proceeds for general corporate purposes. The sales
are exempt from registration pursuant to Section 1145(a) of the Bankruptcy Code
(Title 11, United States Code).

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<PAGE>

ITEM 6. EXHIBITS

<Table>
<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   Credit Agreement, dated as of June 28, 2004, among Metal
      Management, Inc. and LaSalle Bank National Association
      (incorporated by reference to Exhibit 4.1 of the Company's
      Current Report on Form 8-K dated June 28, 2004).
4.2   Third Amendment to the Credit Agreement, dated as of
      December 31, 2005, among Metal Management, Inc. and certain
      subsidiaries of Metal Management, Inc. specified therein, as
      borrowers, the lenders party thereto and LaSalle National
      Bank Association, in its capacity as agent for the lenders
      (incorporated by reference to Exhibit 4.1 of the Company's
      Current Report on Form 8-K, dated December 31, 2005).
31.1  Certification of Daniel W. Dienst pursuant to Section
      240.13a-14(a) and Section 240.15d-14(a) 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(a) and Section 240.15d-14(a) 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 and Robert C. Larry
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

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<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                               METAL MANAGEMENT, INC.

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

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

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

                                               Date: February 2, 2006

                                        31