UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended December 31, 2006
		For the quarterly period ended September 30, 2007
[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from ________________________ to ________________________
		For the transition period from to

Commission file number 10-~~33044~~14836

METAL MANAGEMENT, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		94-2835068
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
325 N. LaSalle Street, Suite 550, Chicago, IL		60610
(Address of Principal Executive Offices)		(Zip Code)

325 N. LaSalle Street, Suite 550, Chicago, IL		60610
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (312) 645-0700

~~Registrant’s~~ Indicate ~~telephone~~by ~~number,~~check ~~Including~~mark ~~Area~~whether ~~Code~~the registrant (1) has filed all reports required to be filed by Section 13 or 15(~~312~~d) of the Securities Exchange Act of 1934 during the preceding 12 ~~645-0700~~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 o

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. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer Xo Non-accelerated filer o

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

As of ~~January~~October 1830, 2007, the registrant had 26,~~320~~050,~~197~~153 shares of common stock outstanding.

INDEX

			Page
PART I: FINANCIAL INFORMATION
~~Item 1.~~	Item 1.	Financial Statements
		Consolidated Statements of Operations — three and nine months ended December 31, 2006 and 2005 (unaudited)		1
		Consolidated Statements of Operations — three and six months ended September 30, 2007 and 2006 (unaudited)		1
		Consolidated Balance Sheets — December 31, 2006 and March 31, 2006 (unaudited)		2
		Consolidated Balance Sheets — September 30, 2007 and March 31, 2007 (unaudited)		2
		Consolidated Statements of Cash Flows — nine months ended December 31, 2006 and 2005 (unaudited)		3
		Consolidated Statements of Cash Flows — six months ended September 30, 2007 and 2006 (unaudited)		3
		Consolidated Statement of Stockholders’ Equity — nine months ended December 31, 2006 (unaudited)		4
		Consolidated Statement of Stockholders’ Equity — six months ended September 30, 2007 (unaudited)		4
		Notes to Consolidated Financial Statements (unaudited)		5
~~Item 2.~~	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2117
~~Item 3.~~	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		2925
~~Item 4.~~	Item 4.	Controls and Procedures		3025
PART II: OTHER INFORMATION
~~Item 1.~~	Item 1.	Legal Proceedings		3127
~~Item 1A.~~	Item 1A.	Risk Factors		3227
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		32
	Item 4.	Submission of Matters to a Vote of Security Holders		28
~~Item 6.~~	Item 6.	Exhibits		3329
Signatures				3430
302 Certification
Employment Agreement with Daniel W. Dienst
302 Certification
Section 302 Certification
Section 1350 Certifications
Section 302 Certification
Section 906 Certification

PART I: FINANCIAL INFORMATION


Item 1.	Financial Statements

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

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended						Six Months Ended
	September 30,			September 30,			September 30,			September 30,
	2007			2006			2007			2006

Net sales	$	715,155		$	584,708		$	1,369,208		$	1,080,620

Operating expenses:
Cost of sales (excluding depreciation)		643,047			507,263			1,226,925			930,184
General and administrative		28,043			22,775			53,470			43,647
Depreciation and amortization		9,461			7,344			17,731			14,191
Merger expenses		2,588			0			2,588			0
Severance and other charges		701			0			701			442


Operating income		31,315			47,326			67,793			92,156

Income from joint ventures		942			554			1,659			2,414
Interest expense		(1,498	)		(284	)		(2,959	)		(606	)
Interest and other income, net		140			513			259			944
Gain on sale of joint venture interest		0			0			0			26,362

Income before income taxes		30,899			48,109			66,752			121,270
Provision for income taxes		13,136			19,036			26,250			47,308

Net income	$	17,763		$	29,073		$	40,502		$	73,962

Earnings per share:
Basic	$	0.70		$	1.11		$	1.61		$	2.86

Diluted	$	0.69		$	1.09		$	1.58		$	2.79

Cash dividends declared per share	$	0.075		$	0.075		$	0.15		$	0.15

Weighted average common shares outstanding:
Basic		25,235			26,089			25,197			25,834

Diluted		25,618			26,581			25,603			26,489

(unaudited, in thousands, except per share amounts)

			Three Months Ended						Nine Months Ended
			December 31,			December 31,			December 31,			December 31,
			2006			2005			2006			2005
Net sales			$	523,965		$	395,090		$	1,604,585		$	1,155,025
Operating expenses:
	Cost of sales (excluding depreciation)			471,702			345,984			1,401,886			1,025,411
	General and administrative			21,913			20,469			65,560			58,711
	Depreciation and amortization			7,131			4,891			21,322			13,868
	Severance and other charges			490			995			932			995
Operating income				22,729			22,751			114,885			56,040
Income from joint ventures				357			2,964			2,771			6,466
Interest expense				(373	)		(418	)		(979	)		(1,176	)
Interest and other income, net				969			376			1,913			1,433
Gain on sale of joint venture interest				0			0			26,362			0
Income before income taxes				23,682			25,673			144,952			62,763
Provision for income taxes				8,103			10,327			55,411			25,050
Net income			$	15,579		$	15,346		$	89,541		$	37,713
Earnings per share:
		Basic	$	0.61		$	0.63		$	3.48		$	1.54
		Diluted	$	0.60		$	0.60		$	3.40		$	1.48
Cash dividends declared per share			$	0.075		$	0.075		$	0.225		$	0.225
Weighted average common shares outstanding:
		Basic		25,532			24,556			25,733			24,429
		Diluted		26,095			25,733			26,357			25,533

See accompanying notes to consolidated financial statements

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

CONSOLIDATED BALANCE SHEETS


	September 30,			March 31,
	2007			2007

ASSETS
Current assets:
Cash and cash equivalents	$	13,996		$	9,354
Accounts receivable, net		232,984			227,397
Inventories		180,807			191,301
Deferred income taxes		5,678			5,544
Prepaid income taxes		1,270			0
Prepaid expenses and other assets		13,406			12,132

Total current assets		448,141			445,728
Property and equipment, net		216,516			187,124
Goodwill		27,263			14,766
Intangible assets, net		27,543			13,267
Deferred income taxes, net		10,325			10,437
Investments in joint ventures		22,151			20,760
Other assets		3,072			3,441

Total assets	$	755,011		$	695,523


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	643		$	46
Accounts payable		170,601			177,747
Income taxes payable		0			12,271
Other accrued liabilities		36,548			35,482

Total current liabilities		207,792			225,546
Long-term debt, less current portion		31,186			160
Other liabilities		9,114			4,987

Total long-term liabilities		40,300			5,147
Stockholders’ equity:
Preferred stock		0			0
Common stock		276			271
Additional paid-in capital		207,727			201,577
Accumulated other comprehensive loss		(1,958	)		(2,008	)
Retained earnings		352,129			315,517
Treasury stock, at cost		(51,255	)		(50,527	)

Total stockholders’ equity		506,919			464,830

Total liabilities and stockholders’ equity	$	755,011		$	695,523

(unaudited, in thousands)

			December 31,			March 31,
			2006			2006
ASSETS
Current assets:
	Cash and cash equivalents		$	79,810		$	37,717
	Short-term investments			26,480			36,035
	Accounts receivable, net			141,497			168,025
	Inventories			179,494			100,683
	Deferred income taxes			4,425			4,842
	Prepaid expenses and other assets			11,526			7,848
		Total current assets		443,232			355,150
Property and equipment, net				167,127			134,674
Goodwill				6,058			2,078
Intangible assets, net				16,218			5,376
Deferred income taxes, net				9,527			10,306
Investments in joint ventures				20,862			45,487
Other assets				3,337			2,246
Total assets			$	666,361		$	555,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	63		$	1,164
	Accounts payable			152,762			119,477
	Income taxes payable			11,711			6,526
	Other accrued liabilities			31,534			37,037
		Total current liabilities		196,070			164,204
Long-term debt, less current portion				211			2,084
Other liabilities				4,516			5,140
		Total long-term liabilities		4,727			7,224
Stockholders’ equity:
	Preferred stock			0			0
	Common stock			271			260
	Warrants			0			179
	Additional paid-in capital			197,582			183,529
	Deferred stock-based compensation			0			(5,045	)
	Accumulated other comprehensive loss			(2,046	)		(2,046	)
	Retained earnings			290,588			207,012
	Treasury stock, at cost			(20,831	)		0
		Total stockholders’ equity		465,564			383,889
Total liabilities and stockholders’ equity			$	666,361		$	555,317

See accompanying notes to consolidated financial statements

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

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six months ended
	September 30,			September 30,
	2007			2006

Cash flows from operating activities:
Net income	$	40,502		$	73,962
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		17,731			14,191
Deferred income taxes		389			592
Income from joint ventures		(1,659	)		(2,277	)
Gain on sale of joint venture interest		0			(26,362	)
Distribution of earnings from joint ventures		30			8,548
Stock-based compensation expense		4,473			3,159
Excess tax benefits from stock-based awards		(1,031	)		(60	)
Other		106			965
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		9,698			(9,439	)
Inventories		17,912			(57,662	)
Other assets		(2,177	)		(4,390	)
Accounts payable		(10,962	)		26,127
Income taxes payable		(3,293	)		14,434
Other liabilities		(5,424	)		(7,776	)

Net cash provided by operating activities		66,295			34,012

Cash flows from investing activities:
Purchases of property and equipment		(31,686	)		(36,022	)
Proceeds from sale of property and equipment		540			979
Acquisitions, net of cash acquired		(54,999	)		(28,299	)
Purchases of short-term investments		0			(95,150	)
Proceeds from sale of short-term investments		0			103,650
Proceeds from sale of joint venture interest		0			46,005
Other		120			(1,200	)

Net cash used in investing activities		(86,025	)		(10,037	)

Cash flows from financing activities:
Issuances of long-term debt		392,876			10,373
Repayments of long-term debt		(365,472	)		(11,310	)
Issuance of common stock		555			8,205
Repurchase of common stock		(728	)		(13,937	)
Excess tax benefits from stock-based awards		1,031			60
Cash dividends paid to stockholders		(3,890	)		(3,993	)
Fees paid to issue long-term debt		0			(608	)

Net cash provided by (used in) financing activities		24,372			(11,210	)


Net increase in cash and cash equivalents		4,642			12,765
Cash and cash equivalents at beginning of period		9,354			37,717

Cash and cash equivalents at end of period	$	13,996		$	50,482


Supplemental disclosures of cash flow information:
Cash interest paid	$	2,593		$	378

Cash income taxes paid, net of refunds	$	30,499		$	32,358

(unaudited, in thousands)

			Nine months ended
			December 31,			December 31,
			2006			2005
Cash flows from operating activities:
Net income			$	89,541		$	37,713
Adjustments to reconcile net income to cash flows from operating activities:
		Depreciation and amortization		21,322			13,868
		Deferred income taxes		1,327			2,350
		Income from joint ventures		(2,771	)		(6,259	)
		Gain on sale of joint venture interest		(26,362	)		0
		Distributions of earnings from joint ventures		8,748			4,360
		Stock-based compensation expense		4,978			5,545
		Asset impairment charge		0			995
		Excess tax benefit from stock-based compensation		(759	)		170
		Other		949			1,626
	Changes in assets and liabilities, net of acquisitions:
		Accounts receivable		26,594			19,502
		Inventories		(78,025	)		(15,171	)
		Accounts payable		33,899			(12,477	)
		Income taxes payable		7,229			380
		Other accrued liabilities		(1,729	)		(6,140	)
		Other assets		(3,293	)		(4,860	)
		Other liabilities		(1,052	)		468
Net cash provided by operating activities				80,596			42,070
Cash flows from investing activities:
		Purchases of property and equipment		(48,073	)		(22,065	)
		Proceeds from sale of property and equipment		1,658			798
		Purchases of short-term investments		(99,600	)		(116,620	)
		Sales of short-term investments		109,155			86,285
		Investments in joint ventures		(2,500	)		0
		Distributions of capital from joint ventures		1,300			1,250
		Proceeds from sale of joint venture interest		46,005			0
		Acquisitions, net of cash acquired		(28,591	)		0
Net cash used in investing activities				(20,646	)		(50,352	)
Cash flows from financing activities:
		Issuances of long-term debt		10,373			427,809
		Repayments of long-term debt		(13,361	)		(428,013	)
		Proceeds from exercise of stock options and warrants		11,776			5,678
		Repurchases of common stock		(20,831	)		0
		Excess tax benefit from stock-based compensation		759			0
		Cash dividends paid to stockholders		(5,965	)		(5,694	)
		Fees paid to issue long-term debt		(608	)		0
Net cash used in financing activities				(17,857	)		(220	)
Net increase (decrease) in cash and cash equivalents				42,093			(8,502	)
Cash and cash equivalents at beginning of period				37,717			52,821
Cash and cash equivalents at end of period			$	79,810		$	44,319
Supplemental disclosures of cash flow information:
Cash interest paid			$	646		$	690
Cash income taxes paid, net of refunds			$	46,855		$	22,523

See accompanying notes to consolidated financial statements

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

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY


														Accumulated
											Additional			Other
	Common Stock				Treasury Stock						Paid-in			Comprehensive			Retained
	Shares		Amount		Shares			Amount			Capital			Loss			Earnings			Total

Balance at March 31, 2007		27,129	$	271		(1,516	)	$	(50,527	)	$	201,577		$	(2,008	)	$	315,517		$	464,830
Net income		0		0		0			0			0			0			40,502			40,502
Amortization of pension costs, net of tax		0		0		0			0			0			50			0			50

Total comprehensive income																					40,552
Exercise of stock options and warrants		30		0		0			0			255			0			0			255
Issuance of restricted stock, net of cancellations		409		4		0			0			(4	)		0			0			0
Issuance of stock under employee stock purchase plan		9		1		0			0			299			0			0			300
Tax benefit related to equity compensation		0		0		0			0			1,092			0			0			1,092
Stock-based compensation expense		0		0		0			0			4,473			0			0			4,473
Repurchase of common stock		0		0		(15	)		(728	)		0			0			0			(728	)
Cash dividends paid to stockholders		0		0		0			0			0			0			(3,890	)		(3,890	)
Other		0		0		0			0			35			0			0			35

Balance at September 30, 2007		27,577	$	276		(1,531	)	$	(51,255	)	$	207,727		$	(1,958	)	$	352,129		$	506,919

(unaudited, in thousands)

																				Accumulated
	Common Stock				Treasury Stock									Additional			Deferred			Other
														Paid-In			Stock-based			Comprehensive			Retained
	Shares		Amount		Shares			Amount			Warrants			Capital			Compensation			Loss			Earnings			Total
Balance at March 31, 2006		25,987	$	260		0		$	0		$	179		$	183,529		$	(5,045	)	$	(2,046	)	$	207,012		$	383,889
Net income		0		0		0			0			0			0			0			0			89,541			89,541
Total comprehensive income																											89,541
Reclassification of deferred stock-based compensation		0		0		0			0			0			(5,045	)		5,045			0			0			0
Issuance of restricted stock (net of cancellations)		238		2		0			0			0			0			0			0			0			2
Issuance of stock under employee stock purchase plan		13		1		0			0			0			304			0			0			0			305
Exercise of stock options and warrants and related tax benefits		843		8		0			0			(157	)		13,664			0			0			0			13,515
Repurchase of common stock		0		0		(763	)		(20,831	)		0			0			0			0			0			(20,831	)
Cash dividends paid to stockholders		0		0		0			0			0			0			0			0			(5,965	)		(5,965	)
Other		0		0		0			0			(22	)		152			0			0			0			130
Stock-based compensation expense		0		0		0			0			0			4,978			0			0			0			4,978
Balance at December 31, 2006		27,081	$	271		(763	)	$	(20,831	)	$	0		$	197,582		$	0		$	(2,046	)	$	290,588		$	465,564

See accompanying notes to consolidated financial statements

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – ~~Basis~~Accounting ~~of Presentation~~ Policies

~~Organization and~~ Business

Metal Management, Inc., a Delaware corporation, and its wholly owned subsidiaries (the “Company”) are principally engaged in the business of collecting, processing and marketing ferrous and non-ferrous scrap metals. The Company collects obsolete and industrial 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 1617 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, but not limited to, 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, ~~2006~~2007.

Reclassifications

Certain reclassifications have been made to the prior year’s financial information to conform to the current year presentation. In the consolidated statements of cash flows, the Company reclassified book overdrafts of $3.0 million from cash flows from financing activities to cash flows from operating activities.

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~~tolling, ~~ferrous and~~stevedoring ~~non-ferrous~~ and ~~scrap~~dismantling ~~metal sales~~ are ~~recognized~~insignificant ~~when title passes~~ to the ~~customer~~Company. ~~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.

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” Revenues from processed ferrous and non-ferrous scrap metal sales are recognized when title and risk of loss have passed to the customer. Revenues relating to brokered sales are recognized upon receipt of the materials by the customer. Revenues from services are recognized as the service is performed. Sales adjustments related to price and weight differences and allowances for uncollectible receivables are accrued against revenues as incurred.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

		Three Months Ended	~~Three Months Ended~~					Six Months Ended	~~Nine Months Ended~~
			December 31,			December 31,			December 31,			December 31,
		September 30,			September 30,			September 30,			September 30,
			2006			2005			2006			2005
		2007			2006			2007			2006
Ferrous metals		$	$486,519	~~300,432~~	$	$350,607	~~255,731~~	$	$892,846	~~946,543~~	$	$646,111	~~747,482~~
Non-ferrous metals			176,040	~~182,680~~		200,377	~~116,177~~		384,951	~~558,704~~		376,024	~~344,650~~
Brokerage – ferrous			46,369	~~35,116~~		26,941	~~15,437~~		79,584	~~78,020~~		42,904	~~42,925~~
Brokerage – non-ferrous			1,784	~~1,391~~		1,807	~~1,513~~		2,798	~~6,865~~		5,474	~~5,040~~
Other			4,443	~~4,346~~		4,976	~~6,232~~		9,029	~~14,453~~		10,107	~~14,928~~
Net sales	~~Net sales~~	$	$715,155	~~523,965~~	$	$584,708	~~395,090~~	$	$1,369,208	~~1,604,585~~	$	$1,080,620	~~1,155,025~~

Recently Issued Accounting Pronouncements

In ~~June~~September 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. ~~109~~157, “~~Accounting for Income~~Fair ~~Taxes~~ Value Measurements.” ~~FIN 48~~This ~~prescribes~~statement aclarifies ~~recognition threshold and measurement attribute for~~ the ~~financial statement~~ ~~recognition~~ definition ~~and measurement~~ of afair ~~tax~~value, ~~position~~establishes ~~taken or expected to be taken in~~ a ~~tax~~framework ~~return.~~for ~~FIN 48 also provides guidance~~measuring on fair ~~derecognition~~value, ~~classification, interest~~ and ~~penalties, accounting~~expands inthe ~~interim~~disclosures ~~periods,~~on ~~disclosure,~~fair ~~and~~value measurements. ~~transition~~SFAS No. ~~FIN~~ 48157 is effective for fiscal years beginning after ~~December~~ November 15, ~~2006~~2007. ~~Any~~The ~~differences~~Company ~~between the amounts~~does ~~recognized~~ not inexpect the ~~consolidated balance sheet prior to the~~ adoption of ~~FIN~~SFAS 48No. 157 ~~and~~to ~~the~~have ~~amounts reported after adoption~~a ~~will~~ material ~~be accounted for as a cumulative-~~effect ~~adjustment recorded to the beginning balance of retained earnings. The Company is currently assessing the impact, if any, that FIN 48 will have~~ on its consolidated financial statements.

In ~~September~~February ~~2006~~2007, the ~~SEC~~FASB issued ~~Staff Accounting Bulletin~~SFAS No. ~~108~~159, “~~Considering~~The ~~the~~Fair ~~Effects~~Value ~~of Prior~~Option ~~Year~~for ~~Misstatements~~Financial ~~when~~Assets ~~Quantifying~~and Liabilities – ~~Misstatements~~Including ~~in Current~~an ~~Year~~amendment ~~Financial~~of ~~Statements”~~FASB Statement ~~(“SAB~~ No. ~~108”)~~115.” ~~SAB~~SFAS ~~108~~No. 159 ~~was~~permits ~~issued~~entities to choose ~~eliminate~~to measure certain financial assets and liabilities at ~~the~~ fair ~~diversity~~value. ofUnrealized ~~practice~~gains inand ~~how~~losses, ~~public~~arising ~~companies~~subsequent ~~quantify~~to ~~financial~~ adoption, ~~statement~~are ~~misstatements~~reported in earnings. ~~SAB~~SFAS ~~108~~No. 159 is effective for fiscal years ~~ending~~beginning after November 15, ~~2006~~ 2007. The Company does not ~~anticipate~~expect ~~that~~ the adoption of ~~SAB~~ SFAS ~~108~~No. 159 ~~will~~to have a material ~~impact~~effect on its consolidated financial statements.

InNOTE ~~September~~2 ~~2006,~~– ~~the~~Merger FASB issued SFAS No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company does not anticipate that the adoption of SFAS No. 157 will have a material impact on its consolidated financial statements. Transaction

In On September 24, ~~2006~~2007, the ~~FASB~~Company ~~issued~~entered ~~SFAS No. 158,~~into a ~~“Employers’~~ definitive ~~Accounting~~merger ~~for~~agreement ~~Defined~~(the ~~Benefit~~“Merger ~~Pension and~~Agreement”) ~~Other~~ with ~~Postretirement~~Sims ~~Plans –~~Group anLimited, ~~Amendment~~a ofcorporation ~~FASB Statements~~organized ~~No. 87,~~under ~~88,~~the ~~106~~laws of Victoria, ~~and~~Australia ~~132~~(R“Sims”).” ~~This statement~~Under ~~requires an employer to recognize~~ the ~~overfunded~~terms ~~or underfunded status~~ of ~~a defined benefit postretirement plan as~~ an the ~~asset~~Merger orAgreement, ~~liability~~each inoutstanding ~~its~~share ~~statement~~ of ~~financial position and~~the to Company’s ~~recognize~~common ~~changes~~stock inwill ~~the~~be ~~funded~~converted ~~status~~into in the ~~year~~right ~~changes~~to ~~occur~~ receive ~~through~~2.05 ~~comprehensive~~American ~~income.~~Depositary ~~The~~Shares ~~Company~~of ~~will~~Sims ~~adopt~~(“Sims ~~SFAS No. 158~~ ADSs”), onwith ~~March 31,~~each ~~2007.~~Sims ~~Based~~ADS onrepresenting ~~the funded~~one ~~status~~ordinary share of ~~pension~~Sims. ~~plan~~All ~~obligations~~outstanding ~~disclosed~~options into purchase shares of the Company’s ~~consolidated~~common ~~financial~~stock ~~statements~~will ~~for~~be ~~the~~converted ~~year ended~~into ~~March 31,~~options ~~2006,~~to purchase ~~the~~shares ~~estimated impact~~ of ~~adopting SFAS No. 158~~Sims ~~would~~ADS, beas anadjusted ~~increase~~for tothe ~~other~~exchange ~~long-term~~ratio. ~~liabilities~~ Under ofcertain ~~$0.6 million~~circumstances, anif ~~increase~~the toMerger ~~deferred~~Agreement ~~tax~~is ~~assets~~ terminated, ofthe ~~$0.2 million~~Company ~~and~~or aSims ~~reduction~~may ~~to shareholders’~~be ~~equity~~required ~~through~~to pay the ~~recognition of~~ other ~~comprehensive~~ party ~~loss~~a termination fee of $025.40 million. ~~At this time, the~~ ~~Company does not expect the March 31, 2007 amounts to be recorded on adoption to be significantly different than estimated.~~

~~Additionally~~ The consummation of the merger is subject to a number of customary closing conditions, ~~SFAS No. 158~~including, ~~requires~~but annot ~~employer~~limited to, ~~measure~~ approval by the ~~funded~~Company’s ~~status~~shareholders. ofPending ~~each~~all requisite ofapprovals, ~~its~~the ~~pension~~parties ~~plans~~expect asto ofclose the merger in ~~date~~ the first quarter of ~~its~~calendar ~~year-end~~2008 ~~statement~~but no assurance can be provided with respect to the timing or consummation of ~~financial~~the merger ~~position~~with Sims. ~~This~~On October 30, 2007, the Company received ~~provision~~ notification ~~becomes~~from ~~effective~~the ~~for~~Federal Trade Commission that it had granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The terms of the Merger Agreement also include certain restrictions or limitations on future transactions of the Company prior to the closing of the merger, including acquisitions or dispositions, additional borrowings, issuance of equity and changes in employee benefit plans. The terms of certain of the Company’s contracts, employee benefit arrangements and debt agreements have provisions that will result in changes to the terms or settlement amounts upon a change in control of the Company.

In the three months ended September 30, 2007, the Company incurred costs associated with the merger of approximately $2.6 million consisting primarily of legal, accounting and investment banking fees.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~NOTE TO3 ~~CONSOLIDATED FINANCIAL STATEMENTS~~ – ~~(Continued)~~ Earnings Per Share

~~Company~~ Basic ~~for~~earnings ~~its~~per ~~March 31,~~share ~~2009 year-end~~is computed by dividing net income by the weighted average common shares outstanding during the period. ~~The~~Diluted ~~funded~~earnings per share reflects the potential ~~status~~ dilution that could occur from the assumed exercise of ~~two~~stock options, assumed vesting of ~~the~~restricted ~~Company’s~~stock, ~~pension~~and ~~plans~~assumed issuance ~~are~~of ~~currently~~common stock under the employee stock purchase plan ~~measured~~ using asthe oftreasury ~~December 31~~stock method.

~~NOTE 2 –~~ The ~~Stock-Based~~computation ~~Compensation~~of basic and diluted earnings per share is as follows (in thousands, except for per share amounts):

Effective April 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” which provides for certain changes in the measurement and recognition of stock-based compensation. The Company elected to use the modified prospective method of adoption whereby prior periods have not been revised for comparative purposes. The Company also changed its accounting policy for recognizing stock-based compensation expense to a straight-line attribution method for all awards that are granted on or after April 1, 2006. For awards subject to graded vesting that were granted prior to the adoption of SFAS No. 123(R), the Company uses an accelerated expense attribution method as described by FASB Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.” SFAS No. 123(R) also required the deferred stock-based compensation on the consolidated balance sheet on the date of adoption be netted against additional paid-in capital. At March 31, 2006, there was a balance of $5.0 million of deferred stock-based compensation that was reclassified to additional paid-in capital on April 1, 2006.


	Three months ended				Six months ended
	September 30,		September 30,		September 30,		September 30,
	2007		2006		2007		2006

Numerator:
Net income	$	17,763	$	29,073	$	40,502	$	73,962

Denominator:
Weighted average common shares outstanding, basic		25,235		26,089		25,197		25,834
Incremental common shares attributable to dilutive stock options and warrants		160		167		170		344
Incremental common shares attributable to unvested restricted stock		223		325		236		311

Weighted average common shares outstanding, diluted		25,618		26,581		25,603		26,489

Basic income per share	$	0.70	$	1.11	$	1.61	$	2.86

Diluted income per share	$	0.69	$	1.09	$	1.58	$	2.79

~~Prior~~ In toboth ~~April 1, 2006,~~ the ~~Company~~three ~~accounted~~and ~~for stock-based~~six ~~compensation~~months ~~using~~ended ~~the intrinsic value method supplemented by pro forma disclosures in accordance with Accounting Principles Board Opinion No.~~September 2530, ~~“Accounting~~ ~~for Stock Issued to Employees” (“APB No. 25”) and SFAS No. 123~~2007, ~~“Accounting~~ ~~for~~ the ~~Stock-Based~~assumed ~~Compensation,”~~conversion asof ~~amended by SFAS No~~0.1 ~~148,~~million ~~“Accounting~~stock ~~for~~options ~~Stock-Based~~were ~~Compensation –~~ excluded ~~Transition~~from ~~and Disclosures.” Under~~ the ~~intrinsic~~diluted ~~value~~earnings ~~method,~~per ~~compensation~~share ~~expense~~calculation. ~~for stock~~In ~~options~~ both ~~was~~the ~~recorded~~three ~~only~~and ~~if,~~six onmonths ~~the~~ended ~~date~~September 30, ~~of the grant~~2006, the ~~current~~ assumed ~~fair~~conversion ~~value~~ of ~~the~~0.3 million ~~Company’s common~~ stock ~~exceeded~~options were ~~the~~ excluded ~~exercise~~from ~~price of~~ the ~~stock~~diluted ~~option.~~earnings ~~Other~~per ~~equity-based awards~~share ~~for~~calculation. ~~which stock-based compensation expense was recorded~~These ~~were generally grants of restricted~~ stock ~~awards~~options ~~which~~ were ~~measured~~ atexcluded ~~fair~~from ~~value on~~ the ~~date~~diluted ofearnings ~~grant~~per ~~based on the number~~share of calculation ~~shares granted and the quoted price of the Company’s common stock. Such value was recognized~~ as antheir ~~expense~~inclusion ~~over~~would ~~the corresponding~~have ~~service~~been ~~period of the awards~~anti-dilutive.

~~SFAS No. 123(R)~~NOTE ~~requires~~4 ~~forfeitures~~– toBalance beSheet estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Previously under APB No. 25, forfeitures were recognized as they occurred. The adjustment to account for the expected forfeitures of stock-based awards granted prior to April 1, 2006, for which the Company previously recorded an expense, was not material. Information

~~As required by SFAS No. 123(R), the Company has~~ ~~included as part of cash flows from financing activities the~~ Inventories gross benefit of tax deductions related to stock-based compensation in excess of the grant date fair value of the related stock-based awards for the options and warrants exercised in the nine months ended December 31, 2006. This amount is shown as a reduction to cash flow from operating activities and an increase to cash flow from financing activities. Changes in cash and cash equivalents remain unchanged from what would have been reported prior to the adoption of SFAS No. 123(R).

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 (in thousands):


	September 30,		March 31,
	2007		2007

Ferrous metals	$	83,020	$	108,553
Non-ferrous metals		97,624		82,538
Other		163		210

	$	180,807	$	191,301

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES TO CONSOLIDATED FINANCIAL~~ ~~STATEMENTS – (Continued)~~ Property and Equipment

~~The~~ Property ~~following table summarizes the stock-based compensation expense for stock options, restricted stock awards~~ and ~~the employee~~equipment ~~stock~~consists ~~purchase~~of ~~plan included in~~ the ~~Company’s consolidated~~following ~~statement of operations~~ (in thousands):

			Three months				Nine months
		September 30,				March 31,
			ended				ended
		2007				2007
			December 31,				December 31,
Land and improvements		$	64,312			$	52,646
			2006				2006
Buildings and improvements			36,039				29,679
Cost of sales (excluding depreciation)			$	51			$	147
Operating machinery and equipment			175,453				151,296
General and administrative				1,768				4,652
Automobiles and trucks			19,262				15,720
Severance and other charges (See Note 4)				0				179
Furniture, office equipment and software			7,348				6,408
	Stock-based compensation expense before income taxes			1,819				4,978
Construction in progress			24,326				27,154
	Income tax benefit			(486	)			(1,361	)
			326,740				282,903
Total stock-based compensation expense after income taxes			$	1,333			$	3,617
Less – accumulated depreciation			(110,224	)			(95,779	)
		$	216,516			$	187,124

~~The income tax benefit is lower than the Company’s~~ ~~effective tax rate due to non-deductible stock-based~~ Other ~~compensation.~~ Accrued ~~In the three and nine months ended~~Liabilities ~~December 31, 2005, the Company recognized stock-based compensation expense of $2.2 million and $5.5 million, respectively, all of which related to restricted stock awards.~~

~~The~~ Other ~~incremental~~accrued ~~impact~~liabilities ofconsist ~~adopting SFAS No. 123(R) was a reduction~~ of ~~pre-tax income by $0.3 million and $1.0 million and a reduction of net income by $0.2 million and $0.7 million in~~ the ~~three~~following ~~and nine months ended December 31, 2006, respectively. Basic and diluted earnings per share~~ (in ~~the three and nine months ended~~ ~~December 31, 2006 are $0.01 and $0.03 per share lower,~~ thousands): ~~respectively, than if the Company had continued to account for stock-based compensation under APB No. 25.~~

In accordance with SFAS No. 123, the Company provided pro forma information to illustrate the effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS No. 123 to stock-based compensation. The pro forma information required under SFAS No. 123 was as follows (in thousands, except per share amounts):


	September 30,		March 31,
	2007		2007

Accrued employee compensation and benefits	$	16,116	$	25,771
Accrued insurance		6,676		5,186
Other		13,756		4,525

	$	36,548	$	35,482

		Three months			Nine months
		ended			ended
		December 31,			December 31,
		2005			2005
Net income, as reported		$	15,346		$	37,713
	Add: Stock-based compensation expense included in reported net income, net of related tax effects		1,305			3,332
	Deduct: Total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects		(1,547	)		(4,002	)
Pro forma net income		$	15,104		$	37,043
Earnings per share:
	Basic – as reported	$	0.63		$	1.54
	Basic – pro forma	$	0.62		$	1.52
	Diluted – as reported	$	0.60		$	1.48
	Diluted – pro forma	$	0.59		$	1.45

Accrued Severance and Other Charges

~~Valuation~~ On ~~Assumptions~~July 18, ~~for~~2007, ~~Stock~~the ~~Options~~Company’s then President of Metal Management Midwest, Inc., Harold J. Rouster, passed away unexpectedly. Mr. Rouster’s employment agreement provided that in the case of his death, his estate would receive a lump sum cash payment equal to his unpaid base salary through March 31, 2008. Accordingly, the Company expensed a one time payment made to Mr. Rouster’s estate of $245.4 thousand in the three months ended September 30, 2007 to satisfy this obligation. The Company also recorded $352.9 thousand of stock-based compensation expense related to the acceleration of vesting of restricted stock held by Mr. Rouster and incurred $102.3 thousand of other costs related to Mr. Rouster’s death.

~~The~~ During ~~fair~~the ~~value~~six ofmonths ~~each~~ended ~~option~~September 30, ~~granted~~2006, ~~before~~the Company recognized severance and ~~after~~other ~~the adoption~~charges of ~~SFAS No~~approximately $0.4 ~~123(R)~~million isrelated ~~estimated~~to on the ~~date~~termination of a former Executive Vice President. The severance and other charges consisted of ~~grant~~cash ~~using~~severance ~~the~~of ~~Black-Scholes~~$263.2 ~~option~~thousand ~~valuation~~and ~~model~~$179.2 ~~Expected~~ thousand ~~volatility~~of isstock-based ~~calculated~~compensation ~~using~~expense ~~historical~~related ~~volatility~~to of the acceleration ~~Company’s~~of ~~common~~vesting of stock ~~over~~options aand ~~period~~restricted atstock held ~~least~~by ~~equal to~~ the ~~expected~~former ~~life~~Executive ofVice ~~each~~President.


NOTE 5 –	Acquisitions

The Company accounts for acquisitions using the purchase method of accounting. The results of operations for companies acquired are included in the Company’s consolidated financial statements for periods subsequent to the date of the acquisition. The pro forma effects of acquisitions on the Company’s consolidated financial statements were not significant.

On July 31, 2007, the Company acquired substantially all the assets of Universal Recycling, Inc. (“Universal”) a scrap metal recycler located in northern Indiana. The total purchase price was approximately $12.6 million, which consisted of $12.5 million in cash and $0.1 million in transaction costs.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ Based TOon ~~CONSOLIDATED~~preliminary ~~FINANCIAL~~valuations of the tangible and intangible ~~STATEMENTS –~~ assets associated with the Universal acquisition, the Company allocated the purchase consideration as follows (~~Continued~~in thousands):

option grant. The expected term represents an estimate of the time options are expected to remain outstanding. The risk-free interest rate is based on zero-coupon U.S. Treasuries with remaining terms equivalent to the expected life of each option grant. The expected dividend yield is based on the expected annual dividends divided by the grant date market value of the Company’s common stock. All options are expensed over the requisite service periods of the awards, which are generally the vesting periods.


Accounts receivable	$	2,648
Inventories		939
Property and equipment		5,531
Amortizable intangible assets		2,122
Goodwill		1,515
Accounts payable and accrued liabilities		(118	)

	$	12,637

~~The~~ On ~~Company~~May 21, ~~used~~2007, the ~~following~~Company ~~weighted~~acquired ~~average~~substantially ~~valuation~~all the ~~assumptions~~ assets toof ~~estimate~~Mars ~~the~~Industries, ~~fair~~Inc. ~~value~~(“Mars”) oflocated ~~options~~in Detroit, ~~granted~~Michigan. inThe ~~the nine~~purchase ~~months~~price ~~ended~~was ~~December~~approximately $43.1 31million, ~~2006~~which consisted of $42.8 million in cash and ~~2005:~~$0.3 million in transaction costs.

	Nine months ended
	December 31,			December 31,
	2006			2005
Expected life (years)		2			2
Expected volatility		47.1	%		49.5	%
Expected dividend yield		0.96	%		1.30	%
Risk-free interest rate		4.93	%		3.52	%
Grant date fair value per share	$	8.92		$	7.13

Based on valuations of the tangible and intangible assets associated with the Mars acquisition, the Company allocated the purchase consideration, net of $0.5 million of cash acquired as follows (in thousands):

Stock Plans


Accounts receivable	$	12,740
Inventories		6,479
Property and equipment		9,442
Other assets		317
Amortizable intangible assets		13,706
Goodwill		10,810
Accounts payable and accrued liabilities		(6,668	)
Long-term debt		(4,212	)

	$	42,614

The Company ~~has~~financed ~~one~~the ~~stock-based~~Universal ~~compensation~~and ~~plan,~~Mars ~~the~~acquisitions ~~Metal~~from ~~Management,~~ borrowings ~~Inc.~~under ~~2002~~its ~~Incentive~~credit ~~Stock Plan (the “2002 Incentive Stock Plan”)~~agreement. The ~~2002 Incentive Stock Plan~~amortizable ~~provides~~ intangible assets for the ~~issuance~~Universal ofand upMars ~~to 4,000,000 shares of~~acquisitions ~~common~~ consists ~~stock~~ of ~~the~~customer ~~Company.~~relationships ~~The~~and ~~Compensation~~non-compete ~~Committee of the~~agreements ~~Board~~ that ofare ~~Directors~~being ~~has~~amortized ~~the authority to issue stock awards under the 2002 Incentive Stock Plan to the Company’s employees, consultants and directors~~ over a period of ~~up to~~ ten years. ~~The stock~~and ~~awards can be in the form of stock options, stock~~five ~~appreciation rights or restricted stock grants. As of December 31~~ years, ~~2006, there are approximately 1~~respectively.~~5 million shares~~ ~~available~~All ~~for issuance under the 2002 Incentive Stock Plan. Prior to the adoption~~ of the ~~2002~~goodwill ~~Incentive~~in ~~Stock~~connection ~~Plan, the~~with ~~Company issued warrants to certain employees and directors,~~both of acquisitions ~~which,~~will asbe ofdeductible ~~December 31,~~for ~~2006,~~tax ~~warrants to purchase 17,000 shares of common stock remain outstanding~~purposes. ~~The following table summarizes compensatory stock~~ ~~option and warrant activity in the nine months ended December 31, 2006:~~

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Life(Yrs)		(in 000’s)
Outstanding at March 31, 2006		796,210		$	22.08
Granted		120,000			31.33
Exercised		(330,878	)		18.30
Expired/forfeited		0			0.00
Outstanding at December 31, 2006		585,332		$	26.12		5.48	$	6,868
Exercisable at December 31, 2006		415,334		$	24.51		5.63	$	5,542

The purchase price allocations for both acquisitions may be adjusted as additional information relative to the acquired businesses and the fair market values of the assets and liabilities of the businesses become known or change.

~~The~~NOTE total intrinsic value of options exercised in the nine months ended December 31, 2006 was $5.1 million, determined as of the date of exercise. The total cash received from stock option exercises in the nine months ended December 31, 2006 was $6~~.0 million.~~ As– ~~of December 31,~~Goodwill ~~2006,~~and ~~there~~Intangible ~~was $0.3 million of unrecognized compensation cost related to nonvested stock options which is expected to be recognized by March 31, 2007.~~ Assets

The following represents a rollforward of goodwill from March 31, 2007 to September 30, 2007 (in thousands):


Balance at March 31, 2007	$	14,766
Purchase accounting adjustments		172
Acquisitions (see Note 5)		12,325

Balance at September 30, 2007	$	27,263

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ Intangible TOassets, ~~CONSOLIDATED~~excluding ~~FINANCIAL~~goodwill, consist of the following ~~STATEMENTS –~~ (~~Continued~~in thousands):

The following table summarizes restricted stock award activity in the nine months ended December 31, 2006:


	September 30, 2007					March 31, 2007
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization

Customer relationships	$	23,699	$	(2,115	)	$	10,350	$	(804	)
Non-compete agreements		7,438		(1,479	)		4,824		(1,103	)

	$	31,137	$	(3,594	)	$	15,174	$	(1,907	)

				Weighted-
				Average Grant
	Shares			Date Fair Value
Outstanding at March 31, 2006		523,227		$	20.40
Granted		241,391			29.05
Vested		(23,707	)		22.51
Cancelled		(3,350	)		26.94
Outstanding at December 31, 2006		737,561		$	23.13

Amortization expense for intangible assets in the three and six months ended September 30, 2007 was $1.0 million and $1.7 million, respectively. Amortization expense for intangible assets in the three and six months ended September 30, 2006 was $0.7 million and $1.1 million, respectively. As of September 30, 2007, estimated future intangible asset amortization expense is as follows (in thousands):

Restricted stock awards are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer by the holder. A holder of restricted stock has voting rights and is entitled to all dividends paid with respect to the restricted stock. As of December 31, 2006, there was $7.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock which is expected to be recognized over a weighted-average period of 0.94 years. The total fair value of restricted stock awards vested in the nine months ended December 31, 2006 was $0.7 million.


Remainder of fiscal 2008	$	2,016
Fiscal 2009		3,825
Fiscal 2010		3,673
Fiscal 2011		3,541
Fiscal 2012		2,947
Thereafter		11,541

~~Employee~~NOTE ~~Stock~~7 ~~Purchase~~– ~~Plan~~ Long-term Debt

~~The~~ Long-term ~~Metal~~debt ~~Management,~~consists ~~Inc. Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board~~ of ~~Directors and approved by~~ the ~~stockholders~~following (in September 2005 and became effective on October 1, 2005. Under the ESPP, eligible employees who elect to participate have the right to purchase common stock, through payroll deductions, at a 15 percent discount from the lower of the market value of the Company’s common stock at the beginning or the end of each three month offering period. The Compensation Committee of the Board of Directors administers the ESPP. The Company has reserved a total of 1,000,000 shares of common stock for issuance under the ESPP. As of December 31, 2006, there were 982,578 shares available for future award grants under the ESPP, of which 5,258 shares were issued on January 2, 2007. In the nine months ended December 31, 2006, ESPP awards were valued using the following weighted average assumptionsthousands):

Expected life (years)		0.25
	September 30,			March 31,
Expected volatility		41.0	%
	2007			2007
Expected dividend yield		0.25	%
Credit Agreement	$	30,173		$	0
Risk-free interest rate		4.90	%
Other debt (including capital leases) due 2007 to 2010		1,656			206
Grant date fair value per share	$	7.21
		31,829			206
Less – current portion of long-term debt		(643	)		(46	)
	$	31,186		$	160

~~NOTE 3 – Earnings Per Share~~ Credit Agreement

~~Basic~~ The ~~earnings~~Company ~~per~~has ~~share~~a $300 million secured five-year revolving credit and letter of credit facility, with a maturity date of May 1, 2011 (the “~~EPS”~~Credit Agreement). isPursuant ~~computed~~to bythe ~~dividing~~ Credit ~~net~~Agreement, ~~income~~the Company pays a fee on the undrawn portion of the facility that is determined by the ~~weighted~~leverage ~~average~~ratio. Significant ~~common~~covenants ~~shares~~under the Credit Agreement include the ~~outstanding.~~ satisfaction ~~Diluted~~of ~~EPS~~a ~~reflects~~leverage ratio and interest coverage ratio. In addition, the ~~potential~~Credit ~~dilution~~Agreement ~~that~~permits capital expenditures of ~~could~~ up ~~occur~~to ~~from~~$85 million for the ~~exercise~~year ending March 31, 2008 and $65 million in each of ~~stock~~the following three fiscal years after March 31, 2008.

Other Debt

In connection with the acquisition of Mars, the Company assumed long-term debt of $4.2 million that consisted of a line-of-credit balance of $2.3 million and capital lease obligations of $1.9 million. Subsequent to closing of the Mars acquisition, the Company repaid the line-of-credit in full and $0.5 million of capital leases.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~NOTE TO8 ~~CONSOLIDATED FINANCIAL STATEMENTS~~ – ~~(Continued)~~ Employee Benefit Plans

~~options~~ The ~~and~~Company ~~warrants~~sponsors ~~and~~three ~~from~~defined ~~unvested~~benefit ~~restricted~~pension ~~stock~~plans for employees at certain of its subsidiaries. ~~The~~Only employees covered ~~following~~ under iscollective abargaining ~~reconciliation~~agreements ofaccrue ~~the~~future ~~numerators~~benefits under these defined benefit pension plans. These benefits are based either on years of service and ~~denominators~~compensation or on years of ~~used~~ service inat ~~computing~~fixed ~~EPS~~benefit ~~(in~~rates. ~~thousands,~~The ~~except~~Company’s funding policy for ~~per~~its ~~share~~ pension plans is to contribute amounts required to meet regulatory requirements. The components of net pension costs were as follows (in thousands):

	Three months ended						Nine months ended
	Three Months Ended						Six Months Ended
	December 31,			December 31,			December 31,			December 31,
	September 30,			September 30,			September 30,			September 30,
	2006			2005			2006			2005
	2007			2006			2007			2006
Numerator:
Service cost	$	42		$	42		$	85		$	87
Net income	$	15,579		$	15,346		$	89,541		$	37,713
Interest cost		187			174			377			353
Denominator:
Expected return on plan assets		(210	)		(169	)		(417	)		(368	)
Weighted average common shares, outstanding, basic		25,532			24,556			25,733			24,429
Amortization of prior service cost		2			5			4			5
Incremental common shares attributable to dilutive stock options and warrants		170			786			286			806
Amortization of net actuarial loss		36			42			76			94
Incremental common shares attributable to unvested restricted stock		393			391			338			298
Net periodic benefit cost	$	57		$	94		$	125		$	171
Weighted average common shares outstanding, diluted		26,095			25,733			26,357			25,533
Basic income per share	$	0.61		$	0.63		$	3.48		$	1.54
Diluted income per share	$	0.60		$	0.60		$	3.40		$	1.48

In the ~~three~~six ~~and nine~~ months ended ~~December~~September 3130, ~~2006~~2007, ~~options~~ tothe ~~purchase 150,000~~Company made ~~and~~cash ~~225,089~~contributions ~~weighted average shares~~ of ~~common stock, respectively, were excluded from the diluted EPS calculation~~$0. ~~In the three and nine months ended December~~8 ~~31,~~million ~~2005, options~~ to ~~purchase 305,000~~its ~~and~~pension ~~345,000~~ plans. ~~weighted~~Based ~~average~~on ~~shares~~consideration of ~~common~~estimates ~~stock,~~provided ~~respectively, were~~by ~~excluded from the diluted EPS calculation. These shares~~its ~~were~~ actuaries, ~~excluded from~~ the ~~diluted~~Company ~~EPS~~does ~~calculation~~not asexpect ~~the~~to ~~option exercise~~make ~~prices~~any ~~were greater than the average market price of~~additional ~~the~~ cash ~~Company’s~~funding ~~common~~contributions ~~stock~~to ~~for~~its ~~the~~pension ~~respective~~plans ~~periods~~through ~~referenced above~~ March 31, ~~and therefore their inclusion would have been anti-dilutive~~2008.

~~NOTE 4 – Other Balance Sheet Information~~ Multi-Employer Plans

~~Short~~ The Company also contributes to several multi-~~term~~employer ~~investments~~pension plans for certain employees covered under collective bargaining agreements. Pension contributions to these multi-employer plans were $0.2 million and $0.3 million in both the three and six months ended September 30, 2007 and 2006, respectively.

~~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, 2006, the Company had short Non-~~term investments~~Qualified of Deferred ~~approximately~~Compensation ~~$26.5 million, which mainly consisted of~~Plan 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.

The Company established a non-qualified deferred compensation plan effective January 1, 2007 for a group of key employees who are not permitted to participate in the Company’s 401(k) plan. Participant deferrals are limited to amounts permitted under Internal Revenue Code Section 402(g) for voluntary contributions into a 401(k) plan. The Company may also provide discretionary contributions including a matching contribution at the same contribution rate as the 401(k) plan.

In connection with the non-qualified deferred compensation plan, the Company established a Rabbi Trust which is funded by the Company in order to satisfy the Company’s contractual liability to pay benefits under the terms of the plan. The Rabbi Trust is subject to the claims of the Company’s creditors. Plan assets are invested generally in the same mutual funds available to the participants and the Company rebalances the portfolio periodically to match the investment allocation of the participants.

The Company accounts for the non-qualified deferred compensation plan in accordance with Emerging Issues Task Force Issue No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts are Held in a Rabbi Trust and Invested.” The investments of the non-qualified deferred compensation plan are included in other assets at fair value with a corresponding liability, which is included in other long-term liabilities in the Company’s consolidated balance sheet. The non-qualified deferred compensation plan assets are classified as trading and reported at fair value with unrealized gains and losses included in the consolidated statement of operations.


NOTE 9 –	Income Taxes

On April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. This interpretation requires the Company to recognize in

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ the TOconsolidated ~~CONSOLIDATED~~financial ~~FINANCIAL~~statements only those tax positions ~~STATEMENTS~~ determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. The adoption of FIN ~~– (Continued)~~48 did not result in an adjustment to the Company’s tax liability for uncertain tax positions.

~~Inventories~~ The amount of gross unrecognized tax benefits (including interest and penalties) at April 1, 2007 was $8.4 million, all of which if recognized would impact the effective tax rate. At September 30, 2007, the amount of gross unrecognized tax benefits was $8.3 million. The Company believes that it is reasonably possible that unrecognized tax benefits will decrease by approximately $3.7 million over the next 12 months as a result of payments that may be made to settle certain state income tax matters.

~~Inventories~~ As of April 1, 2007, interest and penalties accrued for uncertain ~~all~~tax ~~periods~~positions ~~presented~~was ~~are~~$0.8 million. ~~stated~~The atchange in the accrual ~~lower~~for ofinterest and penalties in the six months ended ~~cost~~ September 30, or2007 ~~market~~was not material. ~~Cost~~The Company’s policy is ~~determined~~to ~~principally~~recognize oninterest ~~the~~and ~~average~~penalties accrued on ~~cost~~ uncertain ~~method.~~tax ~~Inventories~~positions ~~consist~~as part of ~~the~~income ~~following~~tax ~~at (in~~expense. ~~thousands):~~

	December 31,		March 31,
	2006		2006
Ferrous metals	$	89,172	$	43,574
Non-ferrous metals		90,053		56,841
Other		269		268
	$	179,494	$	100,683

The Company is subject to taxation in the U.S. and various state and local jurisdictions. The Company was audited by the Internal Revenue Service (“IRS”) for its 2004 tax year. The IRS audit was closed without any adjustment. The U.S. federal tax returns for the 2005 and 2006 tax years are subject to examination. The state of Illinois is currently conducting an income tax audit for the 2005 and 2006 tax years. For the Company’s other major state and local jurisdictions, tax years 2002 through 2006 are subject to examination.

~~Property~~NOTE 10 – Commitments and ~~Equipment~~ Contingencies

~~Property and equipment consists of the following at (in~~ ~~thousands):~~ Legal Proceedings

	December 31,			March 31,
	2006			2006
Land and improvements	$	47,631		$	34,069
Buildings and improvements		29,139			26,524
Operating machinery and equipment		147,056			126,322
Automobiles and trucks		15,063			11,691
Furniture, office equipment and software		5,619			3,232
Construction in progress		13,731			7,469
		258,239			209,307
Less – accumulated depreciation		(91,112	)		(74,633	)
	$	167,127		$	134,674

On June 7, 2007, the Company filed a complaint (the “Complaint”) against Wheeling-Pittsburgh Steel Corporation (“WPSC”) in the Supreme Court of the State of New York County of New York. The Complaint arises from a series of purchase orders (the “Purchase Orders”) issued by WPSC to the Company beginning on or about February 20, 2007, for the purchase, shipment and delivery from the Company to WPSC of specified quantities and types of scrap metal. In the Complaint, the Company is seeking damages for the breach, anticipatory breach, wrongful rejection and repudiation of the Purchase Orders based on the following WPSC actions: (1) WPSC accepted delivery without objection of approximately $31 million worth of scrap metal sold to it by the Company but has failed to make payment for those goods when due; (2) by its conduct, WPSC has indicated its intention not to pay for an additional amount of approximately $8 million in scrap metal purchased by it but where payment has since become past due; and (3) WPSC has blanket rejected scrap metal as nonconforming, in some cases even before the scrap metal was delivered and inspected, and without giving the Company an opportunity to cure any goods alleged by WPSC to be nonconforming as required by the Purchase Orders and the Uniform Commercial Code. Stated in terms of tonnage, the Complaint alleges that WPSC has rejected and/or repudiated agreed Purchase Orders for approximately 86,400 tons of scrap metal, of which 76,800 tons had not yet been shipped or which is en route to WPSC and 9,600 tons of which the Company has already delivered to WPSC, in addition to the approximately 16,000 tons of scrap metal previously rejected. The damages being sought includes the contractual price of the goods, plus incidental damages, costs and disbursements of the action, prejudgment interest and such other relief as may be just and proper.

~~Other~~ In ~~Accrued~~a ~~Liabilities~~related matter, on June 7, 2007, the Company filed a notice of motion for summary judgment in lieu of a complaint (the “Notice”) against Esmark Incorporated, Sun Steel Company LLC, Century Steel Company LLC, North American Steel Company LLC, Great Western Steel Company LLC, Electric Coating Technologies Bridgeview LLC, U.S. Metals & Supply LLC, Miami Valley Steel Service, Inc., Premier Resource Group LLC, Independent Steel Company LLC, Electric Coating Technologies LLC, Esmark Realty LLC, Century Steel Realty LLC, Great Western Realty LLC, Isco Realty LLC, Miami Valley Realty LLC, Sun Steel Realty LLC, U.S. Metals Realty LLC (collectively, “Esmark”) in the Supreme Court of the State of New York County of New York. The Company entered into an unconditional guaranty agreement (the “Guaranty”) with Esmark pursuant to which Esmark agreed to unconditionally, jointly and severally guarantee all money owing to the

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

	December 31,		March 31,
	2006		2006
Accrued employee compensation and benefits	$	18,088	$	22,137
Accrued insurance		5,572		5,118
Accrued equipment and land purchase commitment		1,370		4,000
Other		6,504		5,782
	$	31,534	$	37,037

Accrued Severance and Other Charges

The following table summarizes accrued severance reserve activity in the nine months ended December 31, 2006 (in thousands):

Reserve balances at March 31, 2006	$	1,254
Charge to income		932
Cash payments		(140	)
Non-cash application		(179	)
Reserve balances at December 31, 2006	$	1,867

In the three months ended June 30, 2006, the Company recognized severance and other charges of approximately $442.4 thousand related to the termination of the Company’s former Executive Vice President. The severance and other charges consisted of cash severance of $263.2 thousand payable over twelve months and $179.2 thousand of stock-based compensation expense related to the acceleration of vesting of stock

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ Company TOunder ~~CONSOLIDATED~~the ~~FINANCIAL~~Purchase Orders with WPSC without monetary ~~STATEMENTS~~ limit. Therefore, the Company filed the Notice to seek payment of approximately $31 – million (~~Continued~~reduced to approximately $21 million on September 5, 2007 to reflect interim payments) currently past due under Purchase Orders pursuant to the express terms and conditions of the Guaranty, together with interest, expenses and reasonable attorneys’ fees. On October 3, 2007, the court denied the motion for the summary judgment in lieu of complaint and, pursuant to applicable court rules, the Notice was converted into a complaint and the action against Esmark will now proceed. The Company intends to seek additional monies, together with interest, expenses and attorneys’ fees, as payments become due and owing in the ordinary course.

~~options~~ The ~~and~~Company ~~restricted~~intends ~~stock~~to ~~held~~vigorously bypursue ~~the~~its ~~former~~rights ~~Executive~~and ~~Vice~~remedies ~~President.~~ directly ~~Approximately~~against ~~$124.5 thousand~~WPSC ofand ~~severance~~against Esmark from the unlimited and ~~remains~~ unrepudiated toGuaranty, but there can be ~~paid~~no atassurance ~~December 31,~~as ~~2006~~to the outcome of these actions or their effect on the Company’s financial condition or results of operations.

In From ~~the~~time ~~three~~to ~~months ended December 31~~time, ~~2006,~~ the Company ~~recognized~~ ~~severance~~is ~~and~~involved ~~other~~in ~~charges~~various ~~of approximately~~litigation ~~$490.0 thousand~~ matters ~~related~~involving toordinary ~~the~~and ~~estimated~~routine ~~costs~~claims ofincidental ato its ~~proposed~~ business. ~~settlement~~A ofsignificant ~~several~~portion ~~outstanding~~of ~~claims~~these ~~between~~matters ~~the~~result from ~~Company~~ environmental ~~and~~compliance ~~former~~issues ~~officers~~ and ~~directors~~workers ~~Albert~~compensation ~~A. Cozzi, Frank~~related J. claims ~~Cozzi~~arising ~~and~~from ~~Gregory~~the P.Company’s ~~Cozzi~~operations. ~~The~~There ~~Company expects the amount~~are ~~accrued~~ presently inno ~~the~~legal ~~three~~proceedings ~~months~~pending ~~ended~~against ~~December 31,~~the ~~2006~~Company, ~~along~~ ~~with~~ which, ~~previously~~in ~~accrued~~the ~~balances~~opinion of ~~approximately $1.2 million in~~ the ~~aggregate~~Company’s ~~will~~management, beis likely ~~paid~~to inhave ~~February~~a ~~2007 when~~material ~~the~~adverse ~~settlement~~effect ~~agreement~~on isits ~~finalized (see~~business, ~~Note 10 –~~ financial ~~Commitments~~condition ~~and~~or ~~Contingencies)~~results of operations.

NOTE 5 – Acquisitions

On May 16, 2006, the Company acquired substantially all of the assets of a scrap metal recycling yard in East Chicago, Indiana. The total purchase price was approximately $26.7 million, which consisted of $26.6 million in cash and $0.1 million in other costs. The Company obtained and considered independent valuations of the tangible and intangible assets associated with the purchase and allocated the purchase consideration as follows (in thousands):

Property and equipment acquired		$	8,827
Other tangible assets acquired			1,998
Amortizable intangible assets			12,640
Goodwill			3,641
	Total assets acquired		27,106
Liabilities assumed			(419	)
	Total purchase price	$	26,687

The amortizable intangible assets consist of a customer list that is being amortized over ten years and a non-compete agreement that is being amortized over five years. Goodwill of $3.6 million will be deductible for tax purposes. The purchase price allocation may be subject to revision if additional information on the fair value of assets and liabilities becomes available. Any change in the fair value of the net assets will change the amount of the purchase price allocable to goodwill. The pro forma effects of this acquisition on the Company’s consolidated financial statements were not significant.

NOTE 6 – Goodwill and Other Intangible Assets

The following table summarizes changes in the carrying amount of goodwill in the nine months ended December 31, 2006 (in thousands):

Balance at March 31, 2006	$	2,078
Purchase accounting adjustments		339
Acquisitions (see Note 5)		3,641
Balance at December 31, 2006	$	6,058

The purchase accounting adjustments primarily relate to the settlement of purchase price contingencies.

METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Intangible assets consist of the following at (in thousands):

		December 31, 2006					March 31, 2006
		Gross					Gross
		Carrying		Accumulated			Carrying		Accumulated
		Amount		Amortization			Amount		Amortization
Amortizable:
	Customer lists	$	12,710	$	(1,266	)	$	4,900	$	(313	)
	Non-compete agreements		5,779		(1,009	)		1,025		(240	)
			18,489		(2,275	)		5,925		(553	)
Non-amortizable:
	Pension intangible		4		0			4		0
		$	18,493	$	(2,275	)	$	5,929	$	(553	)

Amortization expense for intangible assets in the three and nine months ended December 31, 2006 was $0.7 million and $1.8 million, respectively. Amortization expense in the three and nine months ended December 31, 2005 was $39.0 thousand and $117.0 thousand, respectively. As of December 31, 2006, expected future intangible asset amortization expense will be as follows (in thousands):

Remainder of fiscal 2007	$	655
Fiscal 2008		2,643
Fiscal 2009		2,453
Fiscal 2010		2,413
Fiscal 2011		2,380
Thereafter		5,670

NOTE 7 – Investments in Joint Ventures

At the beginning of the 2007 fiscal year, the Company had investments in four joint ventures in which it owned between 28.5% and 50% of the joint venture interests. The most significant joint venture investment was in Southern Recycling, L.L.C. (“Southern”), in which the Company had a 28.5% interest. On April 28, 2006, Southern was sold to a third party for $161.4 million in cash. Based upon its ownership interest, the Company received $46.0 million in cash of the sale proceeds. In the nine months ended December 31, 2006, the Company recognized a pre-tax gain on the sale of its ownership interest in Southern of $26.4 million.

At December 31, 2006, investments in joint ventures was $20.9 million, which primarily represents the Company’s 50% ownership interest in Metal Management Nashville, LLC and 50% ownership interest in Port Albany Ventures LLC.

NOTE 8 – Long-term Debt

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

	December 31,			March 31,
	2006			2006
Mortgage loan (interest rate of 5.50%) due January 2009	$	0		$	1,920
Other debt, due 2010		274			1,328
		274			3,248
Less – current portion of long-term debt		(63	)		(1,164	)
	$	211		$	2,084

METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the three months ended December 31, 2006, the Company used existing cash balances to repay two mortgage loans in the aggregate amount of $1.9 million. Other debt as of December 31, 2006 is primarily a note payable issued in exchange for a non-compete agreement in connection with an acquisition.

Credit Agreement

On May 9, 2006, the Company entered into a $300 million secured five-year revolving credit and letter of credit facility, with a maturity date of May 1, 2011 (as amended, the “Credit Agreement”). The Credit Agreement replaced the Company’s previous $200 million secured revolving and letter of credit facility. In consideration for the Credit Agreement, the Company incurred fees and expenses of approximately $0.6 million. Pursuant to the Credit Agreement, the Company pays a fee on the undrawn portion of the facility that is determined by the leverage ratio (currently .175% per annum). Significant covenants under the Credit Agreement include the satisfaction of a leverage ratio and interest coverage ratio. In addition, the Credit Agreement permits capital expenditures of up to $90 million for the year ending March 31, 2007.

The Credit Agreement provides for interest rates based on variable rates tied to the prime rate plus or minus a margin or the London Interbank Offered Rate (“LIBOR”) plus a margin. The margin is based on the Company’s leverage ratio (as defined in the Credit Agreement) as determined for the trailing four fiscal quarters. Based on the current leverage ratio, the margins are either LIBOR plus .875% or prime rate minus .25%. At December 31, 2006, the Company had no borrowings outstanding under the Credit Agreement.

NOTE 9 – 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):

	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2006			2005			2006			2005
Service cost	$	44		$	41		$	131		$	124
Interest cost		176			174			529			524
Expected return on plan assets		(184	)		(174	)		(552	)		(523	)
Amortization of prior service cost		2			24			7			71
Recognized net actuarial loss		47			49			141			147
Net periodic benefit cost	$	85		$	114		$	256		$	343

In the nine months ended December 31, 2006, the Company made cash contributions of $1.0 million to its pension plans. Based on estimates provided by its actuaries, the Company has fulfilled the cash funding requirements for the pension plans for the fiscal year ended March 31, 2007 and expects to make cash contributions of $0.9 million in the year ending March 31, 2008.

Other Plans

The Company also contributes to several multi-employer pension plans for certain employees covered under collective bargaining agreements. Pension contributions to these multi-employer plans were $0.1 million and $0.4 million in the three and nine months ended December 31, 2006, respectively, and $0.1 million and $0.4 million in the three and nine months ended December 31, 2005, respectively.

METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 10 – Commitments and Contingencies

Environmental and Labor Matters

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

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

CERCLA, including the Superfund Recycling Equity Act of 1999 (“SREA”), 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. The Company is executing its SREA responsibility through a contractor working for ~~the~~a trade association called the Institute of Scrap Recycling Industries.

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

~~On July 1, 1998, Metal Management Connecticut, Inc.~~ ~~(“MM-Connecticut”),~~ 13 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 MM-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 MM-Connecticut in the Superior Court of the State of Connecticut – Judicial District of Hartford. An amended complaint was filed by the CTDEP on October 21, 2003. 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 MM-Connecticut from maintaining discharges and to require MM-Connecticut to remediate the facility. The suit also seeks civil penalties from all of the defendants in accordance with Connecticut environmental statutes. The suit makes specific claims against Schiavone and Joseph A. Schiavone Corp. for their alleged violations of environmental laws including, among other things, Joseph A. Schiavone Corp.’s failure to comply with the Connecticut Property Transfer Act when it sold the North Haven Facility to MM-Connecticut. At this stage, the Company is not able to

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ On TOJuly 1, ~~CONSOLIDATED~~1998, ~~FINANCIAL~~Metal Management Connecticut, Inc. ~~STATEMENTS~~ (“MM-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 MM-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 (~~Continued~~“CTDEP”) filed suit against Joseph A. Schiavone Corp., Schiavone, and MM-Connecticut in the Superior Court of the State of Connecticut – Judicial District of Hartford. An amended complaint was filed by the CTDEP on October 21, 2003. 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 MM-Connecticut from maintaining discharges and to require MM-Connecticut to remediate the facility. The suit also seeks civil penalties from all of the defendants in accordance with Connecticut environmental statutes. The suit makes specific claims against Schiavone and Joseph A. Schiavone Corp. for their alleged violations of environmental laws including, among other things, Joseph A. Schiavone Corp.’s failure to comply with the Connecticut Property Transfer Act when it sold the North Haven Facility to MM-Connecticut. At this stage, the Company is not able to predict MM-Connecticut’s potential liability in connection with this action or any required investigation and/or remediation. The Company believes that MM-Connecticut has meritorious defenses to certain of the claims asserted in the suit and MM-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 MM-Connecticut in connection with this matter under the various agreements governing its purchase of the North Haven Facility from Joseph A. Schiavone Corp., as well as for costs associated with the undisclosed conditions of the property. The Company cannot provide assurances that Joseph A. Schiavone Corp. or Schiavone will have sufficient resources to fund any or all indemnifiable claims to which the Company may be entitled.

predict MM-Connecticut’s potential liability in connection with this action or any required investigation and/or remediation. The Company believes that MM-Connecticut has meritorious defenses to certain of the claims asserted in the suit and MM-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 MM-Connecticut in connection with this matter under the various agreements governing its purchase of the North Haven Facility from Joseph A. Schiavone Corp., as well as for costs associated with the undisclosed conditions of the property. The Company cannot provide assurances that Joseph A. Schiavone Corp. or Schiavone will have sufficient resources to fund any or all indemnifiable claims to which the Company may be entitled.

In a letter dated July 13, 2005, MM-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 MM-Connecticut and the Company to those claims made against Schiavone in the action brought by CTDEP. Schiavone’s demand refers to his employment agreement at the time and to the certificate of incorporation of MM-Connecticut, which provide for indemnification against claims by reason of his being or having been a director, officer, employee, or agent of MM-Connecticut, or serving or having served at the request of MM-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 believes that MM-Connecticut has meritorious defenses to Schiavone’s indemnification demand. The Company has also asserted its own claims for indemnification against Schiavone pursuant to the terms of the asset purchase agreement.

The Company has worked with an independent environmental consultant to implement a CTDEP approved characterization plan jointly funded by Schiavone and the Company. The Company is continuing its efforts to reach an acceptable settlement with the other parties with respect to the CTDEP action, but it cannot provide assurances that such a settlement will in fact be reached.

On November 10, 2006, the Company filed a demand for arbitration with the American Arbitration Association against Schiavone and Joseph A. Schiavone Corp. in accordance with the arbitration provisions of the asset purchase agreement governing MM-Connecticut’s purchase of the North Haven Facility. In the arbitration demand, the Company has asserted various breach of contract claims and claims for fraudulent inducement and fraudulent concealment against Schiavone and Joseph A. Schiavone Corp. The Company seeks findings of liability against Schiavone and an order for indemnification, punitive damages, compliance with the Connecticut Property Transfer Act, and reimbursement ~~for~~ for arbitration costs. The arbitration proceeding is in its ~~initial~~ initial stages. In its initial response in the arbitration proceeding, ~~Schiavone~~ ~~and Joseph A.~~ Schiavone ~~Corp. have denied any liability to the Company~~ and asserted various counterclaims for indemnification. While at this preliminary stage the Company is unable to determine the outcome or potential amount of recovery, the Company believes that its claims are meritorious. The Company intends to vigorously defend the counterclaims asserted by Schiavone and Joseph A. Schiavone ~~Corp. in the arbitration.~~

~~On December 15, 2006, the Company filed an application for~~ ~~prejudgment remedy and a motion for disclosure of assets against~~ 14 Schiavone in the U.S. District Court for the District of Connecticut to identify and preserve Schiavone’s assets during the pendency of the arbitration proceedings so that an award in the Company’s favor may be satisfied in the event the Company prevails. At this preliminary stage, the Company is unable to determine the likelihood of success, but believes that its arguments are meritorious.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ Corp. TOhave ~~CONSOLIDATED~~denied ~~FINANCIAL~~any liability to the Company and asserted ~~STATEMENTS – (Continued)~~ various counterclaims for indemnification. While at this preliminary stage the Company is unable to determine the outcome or potential amount of recovery, the Company believes that its claims are meritorious. The Company intends to vigorously defend the counterclaims asserted by Schiavone and Joseph A. Schiavone Corp. in the arbitration.

an On ~~approximately 57 acre property in the Village of Riverdale (which includes the 8.8 acre Facility that was leased by MM-Midwest until~~ December 3115, ~~2003).~~2006, ~~The Notice indicates that~~ the ~~Village~~ ofCompany ~~Riverdale~~filed ~~intends~~an toapplication ~~file suit against~~for ~~MM-Midwest~~ prejudgment ~~(directly~~ remedy and as a ~~successor~~motion tofor ~~138 Scrap)~~disclosure ~~and~~of ~~numerous~~assets ~~other third~~against ~~parties~~ Schiavone ~~under~~in ~~one or both of CERCLA and~~ the ~~Resource Conservation and Recovery Act~~U.S. District AtCourt ~~this~~for ~~stage,~~ the ~~Company~~District ~~cannot~~of ~~predict MM-Midwest’s potential~~ Connecticut ~~liability, if any, in connection with such lawsuit or any required remediation. The Company believes that it has meritorious defenses~~ to ~~certain~~identify ~~of the claims outlined in the Notice~~ and ~~MM-Midwest intends~~preserve toSchiavone’s ~~vigorously defend itself against any claims~~assets ~~ultimately~~ during ~~asserted by~~ the ~~Village~~pendency of ~~Riverdale. In addition, although~~ the ~~Company~~arbitration ~~believes~~proceedings so that ~~it would be entitled to~~an ~~indemnification~~ award ~~from~~in the ~~prior~~Company’s ~~owner~~favor ~~of 138 Scrap for some or all of the obligations that~~ may be ~~imposed~~satisfied ~~on MM-Midwest~~ in ~~connection~~ ~~with this matter under~~ the ~~agreement governing its~~event ~~purchase of~~ the ~~operating~~Company ~~assets~~prevails. ofAt ~~138~~this ~~Scrap~~preliminary stage, the Company is ~~cannot~~ unable ~~provide~~to ~~assurances~~determine ~~that~~ the ~~prior~~likelihood ~~owner~~of ~~will~~success, ~~have sufficient~~but ~~resources~~believes ~~to fund any indemnifiable claims to which~~that ~~the~~ its ~~Company~~arguments ~~may~~are ~~be entitled~~meritorious.

On April 29, 1998, Metal Management Midwest, Inc. (“MM-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”). On March 12, 2007, the Village of Riverdale filed suit against numerous third parties, including MM-Midwest, in the United States District Court – Northern District of Illinois. The suit alleges, 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 MM-Midwest until December 31, 2003). At this stage, the Company cannot predict MM-Midwest’s potential liability, if any, in connection with such lawsuit or any required remediation. The Company believes that MM-Midwest has meritorious defenses to certain of the claims outlined in the suit and MM-Midwest intends to vigorously defend itself. In addition, although the Company believes that it would be entitled to indemnification from the prior owner of 138 Scrap for some or all of the obligations that may be imposed on MM-Midwest in connection with this matter under the agreement governing its purchase of the operating assets of 138 Scrap, the Company cannot provide assurances that the prior owner will have sufficient resources to fund any indemnifiable claims to which the Company may be entitled.

On or about September 23, 2005, CTDEP issued two Notices of Violation (“NOVs”) to Metal Management Aerospace, Inc. (“MM-Aerospace”), a subsidiary of the Company, alleging violations of environmental law at MM-Aerospace’s Hartford facility, including, among other things: (1) operation of a solid waste facility without a permit; (2) failure to comply with certain regulatory requirements pertaining to the management and/or disposal of used oil, hazardous wastes and/or polychlorinated byphenols; (3) failure to comply with certain waste water discharge obligations; (4) failure to comply with certain storm water management requirements; and (5) failure to maintain the facility so as not to create an unreasonable source of pollution to the waters of the State of Connecticut. Substantially similar NOVs were also issued by CTDEP to the property lessor and former business owner, Danny Corp., at the same time.

On October 21, 2005, MM-Aerospace submitted substantive responses to CTDEP regarding the NOVs. At this time, because CTDEP has yet to formally respond to MM-Aerospace’s NOV responses, the Company is unable to determine MM-Aerospace’s potential liability under environmental law in connection with these NOVs. The Company believes that MM-Aerospace has meritorious defenses to certain of the allegations outlined in the NOVs that were raised in the Company’s responses to said NOVs. In addition, the Company believes that by virtue of certain consent orders, Connecticut Transfer Act obligations, and lease/transactional documents executed by Danny Corp. and/or its predecessors in interest, certain environmental liabilities noted in the NOVs will be the responsibility of Danny Corp. However, at the present time, even if Danny Corp. is determined to be liable for any of the matters raised in the NOVs, there can be no assurance that Danny Corp. will have sufficient resources to fund any or all of such liabilities.

On June 22, 2006, Metal Management Alabama, Inc. (“MM-Alabama”), a subsidiary of the Company, received a notice from the Alabama Department of Environmental Management (“ADEM”) directing MM-Alabama to prepare a plan to remove waste from a property in Cleburne County, Alabama known as the “CAMMCO Site.” MM-Alabama has begun an investigation to determine (i1) if it has any liability for the ~~waste allegedly present on the CAMMCO Site, (ii) the~~ nature and quantity of the waste allegedly on the CAMMCO Site, (iii) the identities of other potentially responsible parties, and (iv) the availability of insurance or indemnity for any possible liability. At this preliminary stage, the Company has not determined whether MM-Alabama has any liability with respect to the CAMMCO Site.

~~Legal Proceedings~~ 15

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 has fully cooperated 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.

METAL MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~NOTES~~ waste TOallegedly ~~CONSOLIDATED~~present ~~FINANCIAL~~on the CAMMCO Site, (2) the nature ~~STATEMENTS~~ and quantity of the waste allegedly on the CAMMCO Site, (3) – the identities of other potentially responsible parties, and (~~Continued~~4) the availability of insurance or indemnity for any possible liability. At this preliminary stage, the Company has not determined whether MM-Alabama has any liability with respect to the CAMMCO Site.

As a result of internal audits conducted by the Company, the Company determined that current and former employees of a subsidiary of the Company engaged in activities relating to cash payments to individual industrial account suppliers of scrap metal that may have involved violations of federal and state law. In May 2004, the Company voluntarily disclosed its concerns regarding such cash payments to the U.S. Department of Justice. The Board of Directors appointed a special committee, consisting solely of independent directors, to conduct an investigation of these activities. On July 1, 2006, the Company disbanded the special committee. The Company is cooperating with the U.S. Department of Justice. The Company implemented policies to eliminate cash payments to industrial customers. In 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 $2.4 million to date.

On July 15, 2005, the Company and MM-Midwest filed a complaint (the “Complaint”) in the Circuit Court of Cook County, Illinois, Chancery Division against former officers and directors Albert A. Cozzi, Frank J. Cozzi, and Gregory P. Cozzi for allegedly breaching their respective separation and release agreements, and against Frank J. Cozzi and Gregory P. Cozzi for alleged constructive fraud. The Cozzis filed a counterclaim seeking recovery of amounts allegedly due under the separation and release agreements. On March 8, 2006, the Cozzis motion to compel arbitration was granted, the lawsuit was dismissed, and the parties proceeded to arbitration before the American Arbitration Association. The Company expects to reach a settlement with the Cozzis in February 2007 of several outstanding claims and, if an agreement is reached, the Company anticipates paying the Cozzis in the aggregate $1.2 million in previously accrued balances and approximately $490.0 thousand in other costs. Payment will be funded from existing cash balances of the Company.

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


NOTE 11 –	Stockholders’ Equity

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

Stock Repurchase Program

On September 8, 2006, the Company’s Board of Directors approved a stock repurchase program that authorizes the Company to repurchase up to 2.7 million shares of its common stock. Under the Credit Agreement, the Company is permitted to spend up to $100 million for the purchase of its common stock during the term of the Credit Agreement. AsDuring ofthe ~~December~~six months ended September 3130, ~~2006~~2007, the Company ~~had~~did ~~purchased~~not ~~763,400 shares~~repurchase ofany of its common stock under ~~this~~the stock repurchase program. Since the inception of the stock repurchase program, the Company has purchased 1.5 million shares of its common stock at a cost of approximately $2049.89 million, or at an average cost of $2733.29 25 per share. The stock repurchase program has no expiration date but may be terminated at any time by the Board of Directors.

~~Series A Warrants~~ Stock-Based Compensation

~~During~~ The ~~the~~Company ~~period~~accounts ~~from~~for ~~November~~stock-based compensation in accordance with SFAS 20No. 123(R), ~~2000~~“Share toBased ~~June~~Payment.” SFAS ~~29,~~No. 123(R) requires measurement of compensation ~~2001~~ cost for share-based awards at fair value and recognition of compensation cost over the service period, net of forfeitures. The fair value of restricted stock is determined based on the number of shares granted and the grant date fair value of the Company’s ~~operated~~common ~~its~~stock. ~~business~~The asfair avalue of the stock options ~~debtor~~ and shares granted under the employee stock purchase plan is determined using the Black-inScholes valuation model. Stock-~~possession~~based ~~subject~~ compensation toexpense for the ~~jurisdiction~~three ofmonths ~~the~~ended September 30, ~~United~~2007 ~~States~~and ~~Bankruptcy~~2006 amounted to $2.7 million ~~Court~~ and $1.8 million, respectively, and $4.5 million and $3.2 million for the ~~District~~six ofmonths ended September 30, 2007 and 2006, respectively.

At September 30, 2007, there was $0.8 million and $19.9 million of unrecognized compensation cost related to nonvested stock options and nonvested restricted stock, respectively, which is expected to be recognized over a period of 0.5 years and 1.7 years, respectively.


NOTE 12 –	Investments in Joint Ventures

At September 30, 2007, investments in joint ventures were $22.2 million, which primarily represents the Company’s 50% ownership interest in Metal Management Nashville, LLC and 50% ownership interest in Port Albany Ventures LLC.

The Company previously had an investment of 28.5% in Southern Recycling, LLC (“Southern”). On April 28, 2006, Southern was sold to a third party for $161.4 million in cash. Based upon its ownership interest, the Company received approximately $46.0 million in cash. In the six months ended September 30, 2006, the Company recognized a pre-tax gain on the sale of its ownership interest in Southern of $26.4 million.

~~METAL~~ This Form 10-Q includes ~~MANAGEMENT~~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, ~~INC~~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, 2007 and Item 1A. “Risk Factors” of Part II of this Report, as the same may be amended from time to time.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Delaware. On June 29, 2001, the Plan of Reorganization (“Plan”) became effective and the Company emerged from bankruptcy.

In accordance with the Plan, the Company distributed 697,465 warrants to purchase 1,394,930 shares of common stock (designated as “Series A Warrants”). The Series A Warrants, which expired on June 29, 2006, were distributed to the predecessor company’s stockholders and were immediately exercisable. Each Series A Warrant had a strike price of $21.19 per warrant and was exercisable for two shares of common stock. At June 29, 2006, there were approximately 36,000 Series A Warrants outstanding which were cancelled. As a result, the Company reclassified $22.0 thousand related to the Series A Warrants to additional paid-in capital.

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, 2006, 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 (“Annual Report”) for the year ended March 31, 2007 ~~2006~~ (“~~Annual~~fiscal ~~Report~~2007”).

Overview and Industry

We are one of the largest domestic scrap metal recycling companies with ~~approximately~~53 50 facilities in 1617 states. We ~~enjoy~~ enjoy leadership positions in many markets, such as Birmingham, Chicago, Cleveland, Denver, Detroit, Hartford, Houston, Memphis, Mississippi, Newark, New Haven, Phoenix, Pittsburgh, Salt Lake City, Toledo and Tucson. Through two joint venture investments, we also have operations in Albany and Nashville. We operate in one reportable segment, the scrap metal recycling industry.

Our operations primarily involve the collection, processing and marketing of ferrous and non-ferrous scrap metals. We collect ~~obsolete~~ industrial scrap metal and ~~industrial~~obsolete scrap metal, process it into ~~reusable~~ reusable forms and supply the recycled metals to our customers, ~~including~~ including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metal brokers. In addition to the buying, processing and marketing of ferrous and non-ferrous ~~scrap~~ scrap metals, we are periodically retained as demolition ~~contractors~~ contractors in certain of our large metropolitan markets in which we dismantle obsolete machinery, buildings and other ~~structures~~ 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~~ 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, ~~but not limited to,~~ aluminum, copper, stainless steel and other nickel-bearing metals, brass, titanium and high-temperature alloys, using similar techniques and through ~~certain~~application of our proprietary technologies.

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

We face potentially greater competition for sales of processed scrap from producers of steel products, such as integrated steel mills and mini-mills, if more or larger steel mills vertically integrate by entering the scrap metals recycling business or by attempting to secure scrap supply through direct purchasing from our suppliers. Certain steel manufacturers currently operate scrap yards. Many of these producers have substantially greater financial, marketing and other resources. Scrap metals processors also face competition from substitutes for prepared ferrous scrap, such as pre-reduced iron pellets, hot briquetted iron, pig iron, iron carbide and other forms of processed iron. The availability and relative prices of substitutes for ferrous scrap could result in a decreased demand for processed ferrous scrap and could result in lower prices and/or lower demand for our products.

Merger Agreement with Sims

On September 24, 2007, we entered into a definitive merger agreement (the “Merger Agreement”) with Sims Group Limited, a corporation organized under the laws of Victoria, Australia (“Sims”). Under the terms of the Merger Agreement, each outstanding share of our common stock will be converted into the right to receive 2.05 American Depositary Shares of Sims (“Sims ADSs”), with each Sims ADS representing one ordinary share of Sims. All outstanding options to purchase shares of our common stock will be converted into options to purchase shares of Sims ADS, as adjusted for the exchange ratio. Under certain circumstances, if the Merger Agreement is terminated, we or Sims may be required to pay the other party a termination fee of $25.0 million. The consummation of the merger is subject to a number of customary closing conditions, including, but not limited to, approval by our shareholders. Pending all requisite approvals, we expect to close the merger in the first quarter of calendar 2008 but no assurance can be provided with respect to the timing or consummation of the merger with Sims. On October 30, 2007, we received notification from the Federal Trade Commission that it had granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The terms of the Merger Agreement also include certain restrictions or limitations on our future transactions prior to the closing of the merger, including acquisitions or dispositions, additional borrowings, issuance of equity and changes in employee benefit plans. The terms of certain of our contracts, employee benefit arrangements and debt agreements have provisions which will result in changes to the terms or settlement amounts upon a change in control.

Recent Events

On July 31, 2007, we acquired substantially all of the assets of Universal Recycling, Inc. (“Universal”) for approximately $12.6 million. Universal is a scrap metal recycler located in northern Indiana. The purchase price consisted of $12.5 million in cash and $0.1 million in transaction costs.

On June 7, 2007, we filed a complaint against Wheeling-Pittsburgh Steel Corporation (“WPSC”) in the Supreme Court of the State of New York County of New York. The complaint arises from a series of purchase orders issued by WPSC to us beginning on or about February 20, 2007, for the purchase, shipment and delivery to WPSC of specified quantities and types of scrap metal. In the complaint, we are seeking damages for the breach, anticipatory breach, wrongful rejection and repudiation of the purchase orders. See “Note 10 – Commitments & Contingencies – Legal Proceedings” in the notes to the consolidated financial statements for additional information.

On May 21, 2007, we acquired substantially all of the assets of Mars Industries, Inc. (“Mars”) for approximately $43.1 million. Mars is a full-service scrap metal recycler located in Detroit. The purchase price consisted of $42.8 million in cash and $0.3 million in transaction costs.

Results of Operations

Our operating results are highly cyclical in nature. They tend to reflect and be amplified by changes to general economic conditions, both domestically and internationally. This leads to significant fluctuations in demand and pricing for our products. In Over the ~~nine~~last ~~months~~three ~~ended December 31~~years, ~~2006,~~ we ~~experienced volatile prices for ferrous scrap which can cause collection rates for ferrous scrap to increase (when prices are higher) or decrease (when prices are lower). These variations~~ have ~~had~~experienced ~~a significant~~strong ~~effect on sales volumes we have handled and are able~~industry to conditions ~~ship~~but ~~through~~also ~~our~~encountered ~~scrap~~extreme ~~yards.~~volatility ~~Variability of units handled by our scrap yards and variability~~ in ~~units shipped, along with~~scrap ~~changing metal~~ prices~~, are key drivers of variations in our operating results~~.

21 Our operating results for the three and six months ended September 30, 2007 reflect higher sales but lower profitability as compared to the three and six months ended September 30, 2006. The decline in our

~~Our~~ operating ~~national~~results ~~footprint~~was ~~enables~~primarily usdue to ~~take~~lower ~~advantage~~ferrous ~~of relative strengths in either domestic or export markets~~ and ~~also provides~~ ~~us transportation advantages. For example, during periods of weakness in demand from domestic consumers of~~ non-ferrous ~~scrap,~~margins ~~we are able to leverage our operational flexibility~~ and ~~multifaceted~~ ~~distribution~~lower network to take advantage of more favorable international markets and to mitigate the effects of periodic weakness in domestic demand such as we experienced in the three months ended December 31, 2006. We exported approximately 500,000 tons of non-ferrous ~~scrap~~sales ~~in the three months ended December 31, 2006, which is a record~~volumes.

In Ferrous sales increased in the three and six months ended ~~December~~ September 3130, ~~2006,~~2007 weas ~~generated net~~a ~~sales~~result of ~~$524~~higher sales volumes.0 However, ferrous margins were impacted by sequentially lower ferrous scrap prices (primarily in the three months ended June ~~million~~30, ~~pre-tax~~2007) and ~~income~~the remarketing of our ferrous ~~$23~~ scrap which was originally sold to WPSC (see discussion under “Recent Events” above).~~7 million~~ After achieving record results in fiscal 2007, the market for ferrous scrap metals weakened in the months of April and ~~net~~May ~~income~~2007, causing prices for certain grades of ferrous scrap to decline by approximately $~~15.6~~85 per ton, before stabilizing in June 2007 and increasing slightly in the three months ended September ~~million~~30, 2007. In addition, in the ~~nine~~ six months ended ~~December~~September 3130, ~~2006~~2007, weour ~~generated~~ferrous ~~net sales~~margins of were ~~$1.6 billion,~~impacted ~~pre-tax~~by ~~income~~aggressive competition for the purchase of unprocessed ~~$145.0 million~~ferrous scrap metal and ~~net~~ ~~income~~high ofexport ~~$89~~freight rates.~~5 million.~~

~~Our~~ Non-ferrous ~~operating~~sales ~~results~~decreased by $24.3 million in the three months ended ~~December~~ September 3130, ~~2006~~2007 ~~reflected lower pre-tax income and net income~~ compared to the ~~first and second quarters of the current~~three ~~fiscal~~ months ~~year.~~ended ~~This~~September 30, ~~was~~2006 aprimarily ~~result~~due ofto lower prices, ~~and~~(mainly ~~demand~~ for ~~ferrous~~ ~~scrap~~nickel ~~metal~~alloys), insales ~~the~~disruptions ~~U.S. and lower income from joint ventures. Domestic demand~~ for ~~ferrous scrap was lower because~~copper ~~U.S. steel~~ and ~~mills~~aluminum ~~produced~~into ~~less~~southern ~~steel in the three months ended December 31~~China, ~~2006 reducing their needs for raw materials like ferrous scrap. Weaker ferrous markets were evident in November 2006 when prices for factory bundles declined by~~ as ~~much~~well as ~~$75 per~~sequentially ~~ton from levels at September~~weaker ~~2006. Other grades of ferrous scrap also declined but to a lesser degree than factory bundles. Weaker~~ demand for ~~ferrous scrap~~stainless ~~from U.S.~~ steel ~~mills was mitigated~~, towhich anhad ~~extent,~~been ~~by an~~a ~~increase~~strong indriver ~~demand~~ for us ~~ferrous~~until ~~scrap~~this ~~metal from international markets~~quarter. ~~However,~~This ~~higher~~resulted ~~freight and other costs associated with export shipments negatively impacted our ferrous margins~~ in ~~the three~~a ~~months~~compression ~~ended December 31, 2006. Our~~ of non-ferrous ~~operations~~ ~~continued~~margins ~~to perform well~~ in the three months ended ~~December~~ September 3130, ~~2006 due to favorable pricing and generally~~ ~~strong~~ 2007. ~~demand for non~~Non-ferrous ~~metals~~sales inincreased aby ~~quarter historically weaker in demand~~$8.9 million ~~Demand for industrial based metals, such as aluminum and copper, was strong~~ in the six ~~three~~ months ended ~~December~~ September 3130, ~~2006.~~2007 ~~Demand~~compared ~~for~~to ~~nickel-based scrap, such as stainless steel, in~~ the ~~U.S. was generally weaker in the~~six ~~three~~ months ended ~~December~~September 3130, 2006 ~~than~~mainly indue ~~the~~to ~~first~~favorable pricing and ~~second~~ ~~quarters~~demand ~~of the current fiscal year. We exported stainless scrap~~ in the three months ended ~~December~~June 3130, ~~2006 to mitigate the weak demand from the U~~2007.~~S., but at lower margins~~ ~~than in the first and second quarters of the current fiscal year.~~

~~Prices~~ The ~~for~~following ~~non-ferrous~~table ~~metals~~sets ~~were~~forth ~~generally~~our ~~higher~~statement ~~in the three months ended December 31, 2006 as compared to the three months ended December 31, 2005 although the price~~ of ~~copper declined~~operations ~~from $3.56 per pound to $2.85 per pound in~~and ~~the~~ sales ~~three~~volume ~~months ended December 31, 2006 (according to COMEX~~ data). ~~Our~~for ~~non-ferrous sales have increased to represent 34.9% and 34.8% of sales in~~ the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006,~~2007 ~~respectively, compared to 29.4%~~ and ~~29.8%~~ ~~in the three and nine months ended December 31, 2005, respectively~~2006. ~~We believe this was due to strong pricing and~~ demand for non-ferrous metals attributable in part to demand from industrializing countries such as China who have become significant consumers of industrial metals and especially non-ferrous metals. Many analysts and media reporters believe that demand from industrializing countries such as China for non-ferrous metals is in large part the reason for the extremely high prices of non-ferrous metals as compared to historical averages.

~~Our operating results in the nine months ended December 31,~~ ~~2006 remained strong, which was attributable to favorable~~ Consolidated ~~industry~~ Statement conditions for non-ferrous metals, a careful focus on internal operations, benefits from our capital expenditures and financial discipline. Our industry conditions have generally been favorable for three calendar years and have remained so for most of ~~the~~Operations ~~current fiscal year. In the nine months ended December 31, 2006, pricing and demand for ferrous metals were favorable for the first two quarters~~ (~~due~~$ in ~~part to demand from international markets~~thousands:) ~~but ferrous markets weakened in the~~ U.S. in third quarter of fiscal 2007 as described above. Consequently, we experienced strong earnings in the first two quarters of fiscal 2007 and sequentially significantly lower earnings in the third quarter of fiscal 2007. Historically, changing demand and prices for ferrous scrap metals can significantly impact our earnings, as has been the case in fiscal 2007. The strength in demand and better pricing for non-ferrous metals in fiscal 2007 allowed us to ship non-ferrous scrap metals with attractive margins. Additionally, benefits realized from recovering more non-ferrous metals from our shredding operations has significantly increased sales and operating income in fiscal 2007. On balance, the relative weakness in domestic ferrous markets in certain periods of fiscal 2007 was


	Three Months Ended September 30,												Six Months Ended September 30,
	2007			%			2006			%			2007			%			2006			%

Sales by commodity:
Ferrous metals	$	486,519			68.0		$	350,607			60.0		$	892,846			65.2		$	646,111			59.8
Non-ferrous metals		176,040			24.6			200,377			34.2			384,951			28.1			376,024			34.8
Brokerage – ferrous		46,369			6.5			26,941			4.6			79,584			5.8			42,904			4.0
Brokerage – non-ferrous		1,784			0.3			1,807			0.3			2,798			0.2			5,474			0.5
Other		4,443			0.6			4,976			0.9			9,029			0.7			10,107			0.9

Net sales		715,155			100.0	%		584,708			100.0	%		1,369,208			100.0	%		1,080,620			100.0	%
Cost of sales (excluding depreciation)		643,047			90.0			507,263			86.7			1,226,925			89.6			930,184			86.1
General and administrative expense		28,043			3.9			22,775			3.9			53,470			3.9			43,647			4.0
Depreciation and amortization expense		9,461			1.3			7,344			1.3			17,731			1.3			14,191			1.3
Merger expenses		2,588			0.3			0			0.0			2,588			0.2			0			0.0
Severance and other charges		701			0.1			0			0.0			701			0.0			442			0.0

Operating income		31,315			4.4			47,326			8.1			67,793			5.0			92,156			8.6
Income from joint ventures		942			0.1			554			0.1			1,659			0.1			2,414			0.2
Interest expense		(1,498	)		0.2			(284	)		0.1			(2,959	)		0.2			(606	)		0.1
Interest and other income, net		140			0.0			513			0.1			259			0.0			944			0.1
Gain on sale of joint venture interest		0			0.0			0			0.0			0			0.0			26,362			2.4

Pre-tax income		30,899			4.3			48,109			8.2			66,752			4.9			121,270			11.2
Provision for income taxes		13,136			1.8			19,036			3.2			26,250			1.9			47,308			4.4

Net income	$	17,763			2.5	%	$	29,073			5.0	%	$	40,502			3.0	%	$	73,962			6.8	%

offset by international demand for ferrous scrap and strength in non-ferrous markets and allowed us to increase our sales and profitability as compared to the nine months ended December 31, 2005.


	Three Months Ended September 30,				Six Months Ended September 30,
	2007		2006		2007		2006

Sales volume by commodity (In thousands):
Ferrous metals (tons)		1,549		1,266		2,823		2,338
Non-ferrous metals (lbs.)		125,614		139,691		245,215		265,312
Brokerage – ferrous (tons)		160		83		269		166
Brokerage – non-ferrous (lbs.)		689		1,057		1,658		2,913

Despite our strong results in the nine months ended December 31, 2006, there can be no assurance that strong non-ferrous markets will always outweigh the potential negative consequences to our earnings associated with weak domestic ferrous markets and lower ferrous metal prices (as evidenced in the three months ended December 31, 2006). Additionally, we cannot expect that international demand for ferrous scrap will always offset relatively weak demand from U.S. steel mills.

The following table sets forth our results of operations for the three and nine months ended December 31, 2006 and 2005 ($ in thousands):

		Three Months Ended December 31,												Nine Months Ended December 31,
		2006			%			2005			%			2006			%			2005			%
Sales by commodity:
	Ferrous metals	$	300,432			57.3		$	255,731			64.7	%	$	946,543			59.0		$	747,482			64.7	%
	Non-ferrous metals		182,680			34.9			116,177			29.4			558,704			34.8			344,650			29.8
	Brokerage – ferrous		35,116			6.7			15,437			3.9			78,020			4.9			42,925			3.7
	Brokerage – non-ferrous		1,391			0.3			1,513			0.4			6,865			0.4			5,040			0.4
	Other		4,346			0.8			6,232			1.6			14,453			0.9			14,928			1.4
Net sales			523,965			100.0	%		395,090			100.0	%		1,604,585			100.0	%		1,155,025			100.0	%
Cost of sales (excluding depreciation)			471,702			90.0			345,984			87.6			1,401,886			87.4			1,025,411			88.8
General and administrative expense			21,913			4.2			20,469			5.2			65,560			4.1			58,711			5.1
Depreciation and amortization expense			7,131			1.4			4,891			1.2			21,322			1.3			13,868			1.2
Severance and other charges			490			0.1			995			0.3			932			0.1			995			0.1
Income from joint ventures			357			0.1			2,964			0.8			2,771			0.2			6,466			0.6
Interest expense			(373	)		0.1			(418	)		0.1			(979	)		0.0			(1,176	)		0.1
Interest and other income, net			969			0.2			376			0.1			1,913			0.1			1,433			0.1
Gain on sale of joint venture interest			0			0.0			0			0.0			26,362			1.6			0			0.0
Provision for income taxes			8,103			1.5			10,327			2.6			55,411			3.4			25,050			2.1
Net income		$	15,579			3.0	%	$	15,346			3.9	%	$	89,541			5.6	%	$	37,713			3.3	%

	2006		2005		2006		2005
Sales volume by commodity
(In thousands):
Ferrous metals (tons)		1,176		1,060		3,514		3,210
Non-ferrous metals (lbs.)		126,712		124,334		392,024		355,784
Brokerage – ferrous (tons)		146		69		312		207
Brokerage – non-ferrous (lbs.)		969		1,478		3,882		4,720

Net Sales

Consolidated net sales increased by $~~128~~130.94 million (3222.63%) and $~~449~~288.6 million (3826.97%) to $~~524~~715.01 million and $1.64 billion in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006~~2007, respectively, compared to ~~consolidated~~ ~~net sales of~~ $~~395~~584.17 million and $1.161 billion in the three and ~~nine~~ six months ended ~~December~~September 3130, ~~2005~~2006, respectively. The increase was primarily due to increases in ~~consolidated~~ferrous ~~net~~metals sales ~~was~~ ~~primarily~~ associated ~~due~~with to higher average selling prices ~~for~~and ~~both~~sales ~~ferrous~~volumes ~~and~~ for ferrous material, offset in part by lower non-ferrous ~~metals,~~sales volumes ~~increased~~as ~~unit~~compared ~~shipments,~~to the three and six months ended September 30, 2006. We recognized record net sales ~~from~~in the ~~our~~ three ~~recent~~and ~~acquisitions~~six months ended September 30, 2007.

Ferrous Sales

Ferrous sales increased by $44135.79 million (1738.58%) and $~~199~~246.07 million (2638.62%) to $~~300~~486.45 million and $~~946~~892.58 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006~~2007, respectively, compared to ~~ferrous sales~~ of $~~255~~350.76 million and $~~747~~646.51 million in the three and ~~nine~~ six months ended ~~December~~September 3130, ~~2005~~2006, respectively. The ~~increase~~ increase was due to higher average selling prices, which increased by $37 ~~unit~~ per ~~shipments~~ton (13.4%) to $314 per ton and by $40 per ton (14.4%) to $316 per ton in the three and six months ended September 30, 2007, respectively, compared to $277 per ton and $276 per ton in the three and six months ended September 30, 2006, respectively. In addition, sales volumes ~~generated~~increased ~~from~~by ~~recent~~283,000 tons (22.4%) to 1.6 million tons and 485,000 tons (20.7%) to 2.8 million tons in the three and six months ended September 30, 2007, respectively, compared to 1.3 million tons and 2.3 million tons in the three and six months ended September 30, 2006, respectively.

23 The increase in selling prices for ferrous scrap is evident in data published by the American Metal Market (“AMM”). According to AMM, the average price for #1 Heavy Melting Steel Scrap – Chicago (which is a common indicator for ferrous scrap) was approximately $259 per ton and $263 per ton in the three and six months ended September 30, 2007, respectively, compared to $219 per ton and $233 in the three and six months ended September 30, 2006, respectively. In addition to changes in product mix, our average ferrous selling prices are also impacted by the amount of ferrous scrap sold on a destination basis where our selling price includes freight costs. We have also experienced higher freight costs contributing to higher realized selling prices. Freight costs tend to be a pass through, which increase realized prices but do not significantly affect operating income. In the three and six months ended September 30, 2007, we had more destination-based ferrous sales (mainly export sales) compared to the three and six months ended September 30, 2006.

~~Table~~ The increase in sales volumes was primarily due to additional tons sold to international markets. In the six months ended September 30, 2007, we exported 1,040,000 tons of ~~Contents~~ferrous scrap compared to 600,000 tons in the six months ended September 30, 2006. Recent acquisitions also contributed to increased scrap flows but not significantly.

acquisitions. In the three and nine months ended December 31, 2006, the average selling price for ferrous products increased by approximately $14 per ton (5.9%) to $255 per ton and $36 per ton (15.7%) to $269 per ton, respectively, while ferrous unit shipments increased by 116,000 tons (10.9%) and 304,000 tons (9.5%), respectively, compared to the three and nine months ended December 31, 2005. Ferrous sales generated from recent acquisitions were approximately $15.3 million and $52.8 million in the three and nine months ended December 31, 2006, respectively.

The increase in selling prices for ferrous scrap was evident in data published by American Metal Market (“AMM”). According to AMM data, the average price for #1 Heavy Melting Steel Scrap — Chicago (which is a common indicator for ferrous scrap) was approximately $222 per ton in the nine months ended December 31, 2006, compared to $198 per ton in the nine months ended December 31, 2005.

Non-ferrous Sales

Non-ferrous sales ~~increased~~decreased by $6624.53 million (5712.~~2%) and $214.0 million (62.~~1%) to ~~$182.7 million and~~ $~~558~~176.71 million in the three ~~and nine~~ months ended ~~December~~ September 3130, 2007 ~~2006, respectively,~~ compared to ~~non-ferrous sales of~~ $~~116~~200.24 million ~~and $344.7 million~~ in the three ~~and nine~~ months ended ~~December~~ September 3130, ~~2005, respectively~~2006. The ~~increase~~decline was primarily due to ~~higher average selling prices and, to~~ a ~~lesser degree, from increased unit~~ ~~shipments~~ decrease asin asales ~~result~~volumes of ~~sales generated from recent acquisitions~~14. ~~In the three and nine months ended December 31, 2006, the average selling price for non-ferrous products increased by approximately $0.51 per pound (54.8%) to $~~1~~.44~~ ~~per pound and $0.46 per pound (47.4%) to $1.43 per pound, respectively, while non-ferrous unit shipments increased by 2.4~~ million pounds (110.91%) ~~and~~as ~~36.2 million~~ a ~~pounds~~result ~~(10.2%),~~of ~~respectively,~~weaker ~~compared~~demand tofor ~~the three~~stainless steel and ~~nine~~nickel ~~months~~scrap from ~~ended~~our ~~December 31, 2005~~consumers.

~~Our non~~ Non-ferrous ~~operations~~sales ~~have~~increased ~~benefited~~by ~~from higher prices for copper, aluminum and stainless steel (nickel base metal) in the three and nine months ended December~~$8.9 ~~31,~~million ~~2006. The increase in non-ferrous prices was evident in data published by the London Metals Exchange~~ (~~“LME”~~2.4%) ~~and COMEX. According~~ to ~~COMEX data, average prices for copper were 57~~ $384.3%9 million ~~and 92.0% higher~~ in the ~~three~~six ~~and nine~~ months ended ~~December~~September 3130, ~~2006,~~ 2007 ~~respectively,~~ compared to ~~the three and nine months ended December~~$376.0 ~~31,~~million ~~2005. According to LME data, average aluminum and nickel prices were 31.1% and 38.2% and 160.3% and 87.2% higher, respectively,~~ in the ~~three~~six ~~and nine~~ months ended ~~December~~ September 3130, 2006. ~~compared~~The toincrease ~~the~~was ~~three~~due ~~and~~to ~~nine~~higher ~~months~~average ~~ended~~ selling ~~December 31,~~prices ~~2005.~~for ~~We believe recent~~ non-ferrous ~~prices~~ ~~are~~products ~~significantly~~(primarily higher ~~than historical average prices~~nickel ~~due~~ prices), ~~in part, to increases in industrial production and demand~~which ~~from industrializing countries such as China.~~

~~Our non-ferrous sales are also impacted by the mix of~~ 20 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 Ferrous Sales

Brokerage ferrous sales increased by $19.7 million (127.5%) and $35.1 million (81.8%) to $35.1 million and $78.0 million in the three and nine months ended December 31, 2006, respectively, compared to brokerage ferrous sales of $15.4 million and $42.9 million in the three and nine months ended December 31, 2005, respectively. The increase in the three months ended December 31, 2006 was due to higher average ferrous brokered selling prices, which increased by approximately $17 per ton (7.5%) compared to the three months ended December 31, 2005 and higher brokered ferrous unit sales, which increased by 77,000 tons (111.6%) compared to the three months ended December 31, 2005. The increase in the nine months ended December 31, 2006 was due to higher average ferrous brokered selling prices, which increased by approximately $43 per ton (20.6%) compared to the nine months ended December 31, 2005, and higher brokered ferrous unit sales, which increased by 105,000 tons (50.7%) compared to the nine months ended December 31, 2005. The increase in ferrous units brokered was due to our exporting strategy which involved combining brokered scrap with our scrap on ferrous cargoes sold to international markets.

~~Cost~~ increased ofby ~~Sales~~approximately $0.15 per pound (~~excluding~~10.6%) ~~Depreciation~~to $1.57 per pound and offset a decrease in non-ferrous sales volume of 20.1 million pounds (7.6%).

~~Cost~~ The ofincrease ~~sales~~in ~~consists~~nickel ofprices ~~material~~in ~~costs,~~the ~~freight~~six ~~costs~~months ~~and~~ended ~~processing~~ September 30, ~~expenses.~~2007 ~~Cost~~is ofevident ~~sales was $471.7 million and $1.4 billion~~ in ~~the~~data ~~three~~published ~~and~~by ~~nine months ended~~the ~~December 31,~~ London ~~2006,~~Metals ~~respectively,~~Exchange ~~compared~~(“LME”). According to ~~cost~~LME ~~of sales~~data, of nickel ~~$346.0 million~~prices ~~and~~were $160.~~03 billion~~3% higher in the ~~three~~six ~~and nine~~ months ended ~~December~~ September 3130, ~~2005,~~2007 ~~respectively.~~compared ~~The increase was primarily due~~ to ~~higher~~the ~~material~~six ~~costs~~months ~~for both~~ended ~~ferrous~~ September 30, ~~and non-ferrous metals~~2006.

~~Freight~~ Our ~~costs~~non-ferrous ~~increased~~sales byare ~~$17.7 million~~also ~~(61.1%)~~impacted ~~and $22.1 million~~by ~~(21.8%) in~~ the ~~three~~mix ~~and nine months ended~~of ~~December 31,~~ non-ferrous ~~2006,~~metals ~~respectively, from the comparable prior year periods~~sold. ~~The~~Generally, ~~increase~~prices ~~was~~for ~~primarily~~copper ~~due~~are ~~to freight costs~~higher ~~incurred~~ than inprices ~~connection~~for ~~with~~aluminum anand ~~increase~~stainless insteel. ~~ferrous~~In ~~scrap~~addition, ~~sold to~~the ~~export~~ amount ~~markets.~~of ~~Processing~~high-temperature ~~costs~~alloys ~~increased~~that bywe ~~$4.4 million (10.7%)~~sell, and ~~$11.8 million (9.4%) in~~ the ~~three and nine~~selling ~~months~~ prices ~~ended~~for ~~December 31,~~these ~~2006~~metals, ~~respectively,~~will ~~from~~impact ~~the comparable~~our ~~prior~~non-ferrous ~~year~~sales ~~periods.~~as prices ~~The~~for ~~increase~~these ~~was~~metals ~~primarily~~are ~~due~~generally ~~to processing~~higher ~~costs~~than ~~from~~other non-ferrous ~~recent acquisitions~~metals.

Brokerage Sales

Brokerage ferrous sales increased by $19.4 million (72.1%) and $36.7 million (85.5%) to $46.4 million and $79.6 million in the three and six months ended September 30, 2007, respectively, compared to $27.0 million and $42.9 million in the three and six months ended September 30, 2006, respectively. The increase was due to higher brokered ferrous sales volumes, which increased by 77,000 tons (92.8%) and 103,000 tons (62.0%) in the three and six months ended September 30, 2007, respectively. Average ferrous brokered selling prices decreased by $35 per ton (10.7%) in the three months ended September 30, 2007 compared to the three months ended September 30, 2006, while average ferrous brokered selling prices increased by $38 per ton (14.5%) in the six months ended September 30, 2007 compared to the six months ended September 30, 2006. The average selling prices 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. The volume of ferrous brokerage shipments varies with our export strategies that change from quarter to quarter.

Brokerage non-ferrous sales decreased by $2.7 million (48.9%) to $2.8 million in the six months ended September 30, 2007 compared to $5.5 million in the six months ended September 30, 2006. The decrease was due to lower brokered non-ferrous sales volumes, which decreased by 1.3 million pounds (43.1%) compared to the six months ended September 30, 2006. Margins associated with brokered non-ferrous metals are narrow so variations in this product category are not as significant to us as variations in other product categories. The average selling prices for brokered non-ferrous sales can vary greatly based on product mix.

Other Sales

Other sales are primarily derived from our stevedoring and bus dismantling operations. Stevedoring is a fee for service business primarily associated with our dock operations at Port Newark terminal. The decrease in other sales in the three and six months ended September 30, 2007 was a result of lower stevedoring service based revenue.

Cost of Sales (excluding depreciation)

Cost of sales consists of material costs, freight costs and processing expenses. Cost of sales increased by $135.8 million (26.8%) and $296.7 million (31.9%) to $643.1 million and $1.2 billion in the three and six months ended September 30, 2007, respectively, compared to $507.3 million and $930.2 million in the three and six months ended September 30, 2006, respectively. The increase was primarily due to higher material costs, which increased by $113.4 million (27.4%) and $249.4 million (32.7%) in the three and six months ended September 30, 2007, respectively, compared to the three and six months ended September 30, 2006, and higher freight costs and increased processing expenses.

Freight costs were higher by $14.3 million (30.4%) and $34.1 million (44.6%) in the three and six months ended September 30, 2007, respectively, due to a higher percentage of sales made on delivered contracts, higher freight rates and additional freight and demurrage costs incurred as a result of remarketing ferrous scrap metal that was originally sold to WPSC (see discussion under “Recent Events” above). Processing costs increased by $8.0 million (17.3%) and $13.2 million (14.5%) in the three and six months ended September 30, 2007, respectively, due to higher labor, fuel and operating lease costs and increased unit shipments. A portion of the increase in cost of sales was also due to recent acquisitions.

General and Administrative Expense

General and administrative expense was $2128.90 million and $6553.65 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006~~2007, respectively, compared to ~~general and~~ ~~administrative expense of~~ $2022.58 million and $5843.76 million in the three and ~~nine~~ six months ended ~~December~~ September 3130, ~~2005, respectively~~2006. The increase ~~in the nine months ended December 31, 2006~~ was primarily due to higher compensation expense, ~~professional fees~~ and ~~general~~professional ~~and administrative expense from recent acquisitions~~fees.

In Compensation expense increased by $3.0 million and $5.9 million in the ~~nine~~three and six months ended ~~December~~ September 3130, ~~2006~~2007, ~~compensation expense~~respectively, ~~increased~~primarily bydue ~~$4.7 million~~to higher salary expense, as a result of an increase in ~~bonus accruals and higher~~ headcount ~~primarily~~ ~~attributable~~ associated towith recent acquisitions, and ~~professional~~higher ~~fees~~stock-based compensation expense. Professional fees increased by $01.86 million ~~due~~and to$2.5 million ~~higher~~in ~~legal~~the ~~costs. General~~three and ~~administrative~~six months ~~expense~~ended ~~incurred~~September 30, ~~from~~2007, ~~recent~~respectively, primarily ~~acquisitions~~ due ~~was~~to ~~$0.8 million~~legal ~~and~~expenses $2associated with the WPSC lawsuit.~~5 million~~ inIn the three and ~~nine~~six months ended ~~December~~September 3130, ~~2006~~2007, legal expenses associated with the WPSC lawsuit were $1.0 million and $1.3 million, respectively.

Depreciation and Amortization Expense

Depreciation expense was $68.5 million and $1916.50 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006~~2007, respectively, compared to depreciation expense of $46.96 million and $13.81 million in the three and ~~nine~~six months ended ~~December~~September 3130, ~~2005~~2006, respectively. Amortization expense was $01.60 million and $1.87 million in the three and ~~nine~~six months ended ~~December~~September 3130, ~~2006~~2007, respectively, compared to amortization expense of $380.97 million ~~thousand~~ and $~~116~~1.51 million ~~thousand~~ in the three and ~~nine~~ six months ended ~~December~~ September 3130, ~~2005~~2006, respectively.

~~Depreciation~~ The increase in depreciation expense was ~~higher~~ due to anthe ~~increase~~significant capital investments we have made in ~~capital expenditures~~the ~~and~~last three years as well as depreciation expense associated with fixed assets acquired in ~~connection with~~ recent acquisitions. The increase in amortization expense was a result of intangible assets associated with recent acquisitions. In the three and six months ended September 30, 2007, depreciation and amortization expense increased by $1.6 million and $2.5 million, respectively, due to recent acquisitions.

Merger Expenses

In the three months ended September 30, 2007, we incurred costs associated with our pending merger with Sims of $2.6 million consisting primarily of legal, accounting and investment banking fees.

Severance and Other Charges

In On ~~the~~July 18, ~~three~~2007, ~~months~~our ~~ended~~then ~~June 30~~President of Metal Management Midwest, ~~2006~~Inc., weHarold ~~recognized~~J. Rouster, passed away unexpectedly. ~~severance~~ Mr. Rouster’s ~~and~~employment ~~other~~agreement ~~charges~~provided that in the case of ~~approximately~~his ~~$442.4~~death, ~~thousand~~his estate would receive a lump sum cash ~~related~~ payment equal to ~~the~~his ~~termination~~unpaid ofbase ~~our~~salary ~~former~~through ~~Executive Vice~~March 31, ~~President~~ 2008. ~~The~~Accordingly, ~~severance~~we ~~and~~expensed ~~other~~a ~~charges~~one ~~consisted~~time ofpayment ~~cash~~made to ~~severance~~ Mr. Rouster’s estate of $~~263~~245.24 thousand ~~payable~~in ~~over~~the ~~twelve~~ three months ~~and~~ended September 30, 2007 to satisfy this obligation. We also recorded $~~179~~352.29 thousand of stock-based compensation expense related to the acceleration of vesting of ~~stock options and~~ restricted stock held by ~~the~~Mr. Rouster ~~former~~and ~~Executive~~incurred ~~Vice~~$102.3 ~~President~~thousand of other costs related to Mr. Rouster’s death.

In the ~~three~~six months ended ~~December~~September 3130, 2006, we recognized severance and other charges of approximately $~~490.~~0 ~~thousand~~.4 million related to the ~~estimated~~termination ~~costs~~ of a ~~proposed settlement of several outstanding claims between the company and~~ former ~~officers~~ ~~and~~Executive ~~directors~~Vice ~~Albert A~~President. ~~Cozzi, Frank J. Cozzi and~~ Gregory P. Cozzi. We expect the amount accrued in the three months ended December 31, 2006, along with previously accrued balances of approximately $1.2 million in the aggregate will be paid in February 2007 when the settlement agreement is finalized.

Income from Joint Ventures

Income from joint ventures was $0.49 million and $21.87 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2006~~2007, respectively, compared to ~~income from~~ ~~joint ventures of~~ $3.0.6 million and $62.54 million in the three and ~~nine~~ six months ended ~~December~~September 3130, ~~2005~~2006, respectively. The ~~decline~~increase in the three months ended September 30, 2007 was primarily attributable to higher income from Metal Management Nashville, LLC. The decrease in the ~~sale~~six months ended September 30, 2007 was due to the sale of ~~Southern~~our 28.5% interest in Southern Recycling, LLC (“Southern”) in April 2006. ~~(see below), and losses~~We ~~incurred~~ recognized at$1.0 million ~~our~~of joint venture inincome ~~Nashville~~from Southern in the ~~three~~six months ended ~~December~~September 3130, 2006. We currently have a 50% ownership ~~interests~~ interest in three joint ventures.

Interest Expense

Interest expense was $01.45 million and $13.0 million in the three and ~~nine~~six months ended ~~December~~September 3130, ~~2006~~2007, respectively, compared to ~~interest expense of~~ $0.43 million ~~and~~ and $10.26 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2005~~2006, respectively. The ~~decrease~~increase ~~in the nine months ended December 31, 2006~~ was ~~primarily~~due ~~attributable~~ to ~~lower amortization of deferred financing fees costs. Our~~ interest ~~expense~~incurred ~~primarily~~from ~~consists~~borrowings ~~of amortization of deferred financing costs and unused line fees~~ under our ~~Credit~~credit ~~Agreement~~agreement. At

September 30, 2006, we had no borrowings outstanding under the credit agreement. See “Liquidity and Capital Resources” below for a more detailed discussion of the increase in borrowings.

Interest and Other Income

Interest and other income was $0.1 million and $0.3 million in the three and six months ended September 30, 2007, respectively, compared to $0.5 million and $0.9 million in three and six months ended September 30, 2006, respectively. The decrease was due to lower dividend and interest income as a result of less cash and short-term investments in the three and six months ended September 30, 2007 compared to the three and six months ended September 30, 2006.

Gain on Sale of Joint Venture Interest

On April 28, 2006, we and our joint venture partner ~~in Southern Recycling, LLC (“Southern”)~~ sold ~~our~~ our membership interests in Southern to a third party for $161.4 million in cash. Based upon our ownership interest, we received $46.0 million in cash from the sale proceeds. We recorded a pre-tax gain from the sale of our ownership interest of $26.4 million in ~~nine~~the six months ended ~~December~~ September 3130, 2006.

Income Taxes

In the three and ~~nine~~six months ended ~~December~~September 3130, ~~2006~~2007, we recognized income tax expense of $813.1 million and $5526.43 million, respectively, resulting in an effective tax rate of 34approximately 42.25% and 3839.23%, respectively. In the three and ~~nine~~ six months ended ~~December~~September 3130, ~~2005~~2006, our income tax expense was $1019.30 million and $2547.13 million, respectively, resulting in an effective tax rate of ~~approximately 40~~39.6% ~~for both~~and ~~periods~~ 39.0%, respectively. The effective tax rate ~~differs~~increased ~~from~~in ~~the~~three months ~~statutory~~ended ~~rate mainly~~September 30, 2007 due to ~~discrete~~non-deductible merger expenses and ~~permanent~~an ~~tax~~increase ~~items.~~in ~~Discrete~~non-deductible ~~items~~stock-based ~~recorded~~ compensation. inThe ~~the~~effective ~~three~~tax ~~months~~rate ~~ended~~differs ~~December 31,~~from ~~2006~~the ~~was~~federal ~~primarily~~ statutory ~~composed~~rate ofmainly adue ~~favorable provision~~ to ~~return~~state ~~adjustment which~~taxes ~~lowered~~and ~~our~~permanent ~~effective~~ tax ~~rate~~items.

Net Income

Net income was $1517.68 million and $8940.5 million in the three and ~~nine~~six months ended ~~December~~September 3130, ~~2006~~2007, respectively, compared to ~~net income of~~ $1529.31 million and $3774.70 million in the three and ~~nine~~six months ended ~~December~~ September 3130, ~~2005~~2006, respectively. Net income ~~increased~~decreased indue ~~the~~ to ~~nine~~lower ~~months~~ferrous ~~ended~~and ~~December 31~~non-ferrous margins, ~~2006~~higher ~~due~~processing toand general ~~higher~~and ~~sales~~ administrative expenses, and ~~higher~~merger ~~margins~~expenses recognized onin ~~ferrous~~the three and ~~non-ferrous~~six ~~metals~~months ended September 30, 2007. ~~net~~Net income ~~generated~~ byin ~~recent~~the ~~acquisitions,~~six ~~and~~months ended September 30, 2006 benefited from the one-time after-tax gain of $16 million recognized on the sale of our ownership interest in Southern.

Liquidity and Capital Resources

Our sources of liquidity include cash and ~~short-term investments,~~cash equivalents, collections from customers and ~~amounts~~borrowings ~~available~~ under our ~~Credit~~credit agreement. ~~Agreement~~Cash and cash equivalents totaled $14.0 million at September 30, 2007, an increase of $4.6 million from March 31, 2007. We believe these sources are ~~adequate~~ adequate to fund ~~for day-to-day expenditures~~operating expenses and related liabilities, planned capital expenditures, acquisitions, the payment of cash dividends to stockholders and our stock repurchase program.

At We ~~December~~have a $300 ~~31,~~million ~~2006~~secured five-year revolving credit and letter of credit facility, ~~our~~with ~~total~~a ~~indebtedness~~maturity ~~was~~date of ~~$0.3~~ May ~~million~~1, 2011 (~~primarily~~“Credit Agreement”). Pursuant to the Credit Agreement, we pay a ~~note~~fee ~~payable~~on ~~issued~~the inundrawn ~~exchange~~portion of the ~~for~~ facility athat ~~non-compete~~is ~~agreement).~~determined Weby ~~had~~the noleverage ~~borrowings~~ratio. ~~outstanding~~Significant on covenants ~~our~~under the Credit Agreement ~~and~~include ~~had~~the ~~cash~~satisfaction of a leverage ratio and ~~short-term~~interest ~~investments~~coverage ratio. The Credit Agreement permits capital expenditures of $~~106.3~~85 million atfor the ~~December~~year ending March 31, ~~2006~~2008. In addition, the Credit Agreement limits the amount we can spend on stock repurchases to $100 million during the term of the Credit Agreement. We satisfied all of our covenants under the Credit Agreement as of September 30, 2007. The Credit Agreement provides for interest rates based on variable rates tied to the prime rate plus or minus a margin or the London Interbank Offered Rate (“LIBOR”) plus a margin. The margin is based on our leverage ratio (as defined in the Credit Agreement) as determined for the trailing four fiscal quarters.

On At ~~May~~September 930, ~~2006~~2007, weour ~~entered~~total ~~into~~indebtedness a was $~~300~~31.8 million ~~secured five-year revolving credit and letter of credit facility~~, ~~with a maturity date~~ of ~~May 1,~~which ~~2011 (as amended, the “Credit Agreement”). The Credit Agreement replaced the Company’s previous~~ $~~200~~30.2 million ~~secured~~was ~~revolving and~~outstanding ~~letter~~ under ofthe ~~credit~~Credit ~~facility~~Agreement. InAt ~~consideration~~March 31, ~~for the Credit Agreement~~2007, we ~~paid~~had ~~fees and expenses of approximately~~no ~~$0.6 million.~~ borrowings ~~Pursuant~~outstanding tounder the Credit Agreement,. weTotal ~~pay a~~unused ~~fee~~ borrowings onunder the ~~undrawn~~Credit ~~portion~~Agreement ofwere ~~the~~approximately $262.9 million ~~facility~~and ~~that~~$293.1 million ~~is determined by~~at ~~the~~ September 30, ~~leverage~~2007 ~~ratio~~and ~~(currently .175%~~March ~~per~~31, ~~annum).~~2007, ~~Significant~~respectively. ~~covenants~~ Borrowings ~~under~~in the ~~Credit~~six ~~Agreement~~months ~~include the satisfaction of~~ended a

26 23

~~leverage ratio and interest coverage ratio. The Credit Agreement permits capital expenditures of up to $90~~ September ~~million for the year ending March 31~~30, 2007. Inincreased ~~addition,~~primarily ~~the~~to ~~Credit Agreement~~fund ~~limits~~ the ~~amount we can spend on stock repurchases to~~ ~~$100 million~~ acquisitions ~~during~~of ~~the~~Mars ~~term~~and ofUniversal, ~~the~~capital ~~Credit~~expenditures, ~~Agreement. We~~merger ~~satisfied~~ expenses, ~~all~~and ofworking ~~our~~capital ~~covenants~~changes ~~under~~since ~~the Credit Agreement as of December~~March 31, ~~2006~~2007.

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

Cash Flows

	Nine Months Ended
	December 31,			December 31,
	2006			2005
(in thousands)
Net cash provided by operating activities	$	80,596		$	42,070
Net cash used in investing activities	$	(20,646	)	$	(50,352	)
Net cash used in financing activities	$	(17,857	)	$	(220	)

The following sets forth our cash flows (in thousands):

In the nine months ended December 31, 2006, the increase in net cash provided by operating activities was due to higher net income adjusted for non-cash items ($36.6 million) and a smaller increase in investments in working capital. Working capital reduced cash flow from operations by $16.4 million in the nine months ended December 31, 2006 compared to a reduction of $18.3 million in the nine months ended December 31, 2005. The working capital improvement was mainly due to an increase in accounts payable of $33.9 million in the nine months ended December 31, 2006 compared to decrease in accounts payable of $12.5 million in the nine months ended December 31, 2005. Offsetting this increase were higher inventories of $78.0 million in the nine months ended December 31, 2006 compared to a $15.2 million increase in inventories in the nine months ended December 31, 2005. Accounts payable increased in the nine months ended December 31, 2006 due to higher purchase prices for scrap metal. The increase in inventories in the nine months ended December 31, 2006 was due to higher prices and higher levels of both ferrous and non-ferrous inventory units on hand at December 31, 2006 as compared to March 31, 2006.


	Six Months Ended
	September 30,			September 30,
	2007			2006

Net cash provided by operating activities	$	66,295		$	34,012
Net cash used in investing activities	$	(86,025	)	$	(10,037	)
Net cash provided by (used in) financing activities	$	24,372		$	(11,210	)

~~In the nine months ended December 31, 2006, net cash used~~ ~~in investing activities decreased due to $46.0 million of~~ Operating ~~cash received from the sale of our ownership interest in~~ Activities Southern and $9.6 million of cash received from the sale of short-term investments. This offset, in part, $48.1 million of cash used for capital expenditures and $28.6 million of cash used for acquisitions. In the nine months ended December 31, 2005, net cash used in investing activities primarily consisted of $22.1 million of cash used for capital expenditures and $30.3 million of cash used to purchase short-term investments.

In Net ~~the~~cash ~~nine~~provided by operating activities increased in the six months ended ~~December~~September 3130, ~~2006,~~2007 ~~net~~compared ~~cash~~to ~~used in~~the ~~financing~~six ~~activities~~months ended ~~increased~~September 30, 2006 due to ~~$20.8 million~~lower ofinvestments in ~~cash~~ working ~~used~~capital. toThe ~~repurchase~~decrease ~~common~~in ~~stock,~~working ~~$6.0 million~~capital ofinvestments ~~cash~~was ~~used~~ mainly due to ~~pay~~higher ~~dividends~~accounts ~~and~~receivable ~~$3.0 million~~collections ofdue ~~cash used~~ to a ~~repay~~ reduction ~~long-term~~in ~~debt.~~days Wesales ~~received~~outstanding ~~$11.8 million~~and oflower ~~cash~~inventory levels, ~~from~~ offset ~~the~~in ~~exercise~~part ofby ~~stock~~a ~~options~~reduction ~~and~~in ~~Series A~~accounts ~~warrants~~payable due to lower purchase prices for scrap metal.

~~Future Capital Requirements~~ Investing Activities

We Net ~~expect~~cash toused ~~fund~~in ~~our~~investing ~~working~~activities ~~capital~~increased ~~needs,~~in ~~stock~~the ~~repurchase~~six ~~program~~ months ended September 30, ~~dividend~~2007 ~~payments~~compared ~~and~~to ~~capital~~the ~~expenditures~~six ~~over~~months ended September 30, 2006. In the ~~next~~ ~~twelve~~six months ~~with~~ended September 30, ~~cash~~2007, ~~short-term~~we ~~investments,~~used ~~and~~$55.0 million of cash for ~~generated~~ acquisitions ~~from~~and ~~operations,~~$31.7 million ~~supplemented~~of bycash ~~undrawn~~for ~~borrowing~~capital ~~availability~~ expenditures. ~~under~~In the ~~Credit~~six ~~Agreement.~~months Weended ~~believe~~September 30, ~~these~~2006, ~~sources~~ we received $46.0 million of ~~capital~~cash ~~will~~from bethe ~~sufficient~~sale ~~for~~of ~~the~~our ownership ~~next~~interest ~~twelve~~in Southern and $8.5 million of cash ~~months,~~ from ~~although~~the ~~there~~sale ~~can~~of beshort-term noinvestments. ~~assurance~~These ~~that~~cash ~~this~~proceeds were ~~will~~used, bein ~~the~~part, for acquisitions of $28.3 million and ~~case~~ capital expenditures of $36.0 million.

~~Capital expenditures were $48.1 million in the nine months~~ ~~ended December 31, 2006. We expect that our total capital~~ Financing ~~expenditures in fiscal 2007 will be in the range of~~ Activities $75 million to $90 million. Significant capital expenditures include the construction of a mega-shredder facility at our Newark facility, for which we have incurred approximately $17.1 million through December 31, 2006. We expect to spend an additional

Net cash provided by financing activities increased in the six months ended September 30, 2007 compared to the six months ended September 30, 2006. The increase was due to $27.4 million of borrowings which were used to fund acquisitions and capital expenditures. In the six months ended September 30, 2006, we used $11.2 million of cash in financing activities primarily for the repurchase of our common stock.

$9 million to $10 million over the balance of fiscal 2007 to install the mega-shredder in Newark. We also acquired land for approximately $12.4 million in January 2007.

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

We anticipate that our Board of Directors will continue to declare cash dividends; however, the continuance of cash dividends is not guaranteed.

Off-Balance Sheet Arrangements, Contractual Obligations and Other Commitments

Off-Balance Sheet Arrangements

Other than operating leases, we do not have any significant off-balance sheet arrangements that are likely to have a current or future effect on our financial condition, results of operations or cash flows. We enter into operating leases for new equipment due to favorable financing terms. These operating leases are attractive to us since the implied interest rates are sometimes lower than interest rates under the Credit Agreement. We expect to selectively use operating leases for new equipment as required by our operations.

Contractual Obligations

We In ~~have~~our ~~various~~Annual ~~financial~~Report ~~obligations~~for ~~and~~fiscal ~~commitments~~2007, ~~assumed~~we indisclosed our ~~the~~ contractual ~~normal~~obligations. ~~course~~There ofhave ~~our~~been ~~operations~~no ~~and~~material ~~financing~~changes ~~activities.~~to ~~Financial~~ contractual obligations ~~are~~other ~~considered~~than an increase in total debt to $31.8 million ~~represent~~at ~~known~~September 30, ~~future~~2007 compared to ~~cash~~ $0.2 million ~~payments~~at ~~that~~March 31, we2007. ~~are~~The ~~required~~increase in total debt was due to ~~make~~borrowings under ~~existing contractual~~our ~~arrangements,~~Credit ~~such~~Agreement as described ~~debt~~above under “Liquidity and ~~lease~~Capital Resources.” ~~agreements~~In addition, see “Note 9 – Income Taxes” in the notes to the consolidated financial statements regarding potential obligations related to uncertain tax positions that we believe may be settled in the next twelve months.

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

			Less than		One to		Three to
	Total		One Year		Three Years		Five Years		Thereafter
Long-term debt and capital leases	$	324	$	83	$	166	$	75	$	0
Operating leases		60,555		14,094		21,413		9,834		15,214
Pension funding obligations		855		641		214		0		0
Other contractual obligations		3,299		2,889		260		60		90
Total contractual cash obligations	$	65,033	$	17,707	$	22,053	$	9,969	$	15,304

Other Commitments

We ~~enter~~are ~~into~~required ~~letters~~to ofmake ~~credit~~contributions into our defined benefit pension plans. These contributions are required under the minimum ~~ordinary~~funding ~~course~~requirements of ~~operating~~ ~~and~~the ~~financing~~Employee ~~activities~~Retirement Income Security Act (ERISA). AsHowever, ofdue ~~January 18~~to uncertainties regarding significant assumptions involved in estimating future required contributions, ~~2007~~such as pension plan benefit levels, interest we rate ~~had~~levels ~~outstanding~~and ~~letters~~the amount of ~~credit~~pension ofplan ~~$7.0 million~~asset returns, ~~much~~we are not able to reasonably estimate the amount of ~~which~~future isrequired contributions ~~securing~~beyond ~~insurance~~fiscal ~~policies~~2008.

Our minimum required pension contribution for fiscal 2008 is approximately $0.8 million, all of which was paid in the six months ended September 30, 2007.

We also enter into letters of credit in the ordinary course of operating and financing activities. As of October 15, 2007, we had outstanding letters of credit of $6.9 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 consolidated 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.

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report, except as follows:

~~Stock-Based Compensation~~ Income Taxes

~~Effective~~ On April 1, ~~2006~~2007, we adopted the provisions of Financial ~~SFAS~~ Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. ~~123~~109” (R“FIN 48”)., Wewhich ~~estimate~~ clarifies the ~~fair~~accounting ~~value~~for ofuncertainty ~~stock options~~in ~~and~~income ~~our~~tax ~~employee~~positions. ~~stock~~This interpretation ~~purchase~~requires ~~plan~~us ~~using~~to recognize in the consolidated ~~Black-Scholes~~ financial ~~option~~statements ~~valuation~~only ~~model.~~those ~~Option-pricing~~tax ~~models~~positions determined to be ~~require~~ more ~~the~~likely ~~input~~than not of ~~highly~~being ~~subjective~~sustained ~~assumptions~~upon examination, ~~including~~based on the ~~price~~technical ~~volatility~~merits of the positions. See “Note 9 – Income Taxes” in the notes to the consolidated financial statements regarding the impact of the adoption of FIN 48.

underlying stock. To estimate the fair value of stock options, we consider the past exercise behavior in order to determine the expected life assumption in the Black-Scholes option valuation model. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled.

Recent Accounting Pronouncements

In ~~June~~September 2006, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~Interpretation~~Statement ~~No. 48,~~of ~~Accounting~~Financial ~~for~~ Accounting ~~Uncertainty~~Standards ~~in Income Taxes”~~ (“~~FIN 48~~SFAS”)~~. FIN~~ ~~48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS~~ No. ~~109~~157, “~~Accounting~~Fair ~~for Income~~Value ~~Taxes~~Measurements.” ~~FIN 48~~This ~~prescribes~~statement ~~a recognition~~clarifies ~~threshold and measurement attribute for~~ the ~~financial~~definition ~~statement recognition and measurement~~ of afair ~~tax~~value, ~~position~~establishes ~~taken or expected to be taken in~~ a ~~tax~~framework ~~return. FIN 48 also provides guidance~~for on measuring ~~derecognition,~~fair ~~classification~~value, ~~interest~~ and ~~penalties, accounting~~expands inthe ~~interim~~disclosures ~~periods,~~on ~~disclosure,~~fair ~~and~~value measurements. ~~transition~~SFAS No. ~~FIN~~ 48157 is effective for fiscal years beginning after ~~December~~ November 15, ~~2006~~2007. ~~Any~~We ~~differences~~do ~~between~~not ~~the amounts~~expect ~~recognized in~~ the ~~consolidated balance sheet prior to the~~ adoption of ~~FIN~~SFAS 48No. 157 ~~and~~to ~~the~~have ~~amounts reported after adoption will be accounted for as~~ a ~~cumulative-effect~~material ~~adjustment recorded~~effect ~~to the beginning balance of retained earnings. We are currently assessing the impact, if any, that FIN 48 will have~~ on our consolidated financial statements.

In ~~September~~February ~~2006~~2007, the ~~SEC~~FASB issued ~~Staff Accounting Bulletin~~SFAS No. ~~108~~159, “~~Considering~~The ~~the~~Fair ~~Effects~~Value ~~of Prior~~Option ~~Year~~for ~~Misstatements~~Financial ~~when~~Assets ~~Quantifying~~and ~~Misstatements in~~Financial ~~Current~~ Liabilities, ~~Year~~including ~~Financial~~an ~~Statements”~~amendment of FASB Statement ~~(“SAB~~ No. ~~108”)~~115.” ~~SAB 108~~This ~~was~~statement ~~issued~~permits entities to ~~eliminate~~choose to ~~the~~ measure ~~diversity~~many offinancial ~~practice~~instruments inand ~~how~~certain ~~public~~other ~~companies~~items ~~quantify~~at ~~financial~~ fair ~~statement~~value ~~misstatements~~that are not currently required to be measured at fair value. ~~SAB~~SFAS ~~108~~159 is effective for fiscal years beginning ~~ending~~ after November 15, ~~2006~~2007. We do not ~~anticipate~~ ~~that~~expect the adoption of ~~SAB~~SFAS ~~108~~No. 159 ~~will~~to have a material ~~impact~~effect on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We do not anticipate that the adoption of SFAS No. 157 will have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106, and 132(R).” This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year changes occur through comprehensive income. We will adopt SFAS No. 158 on March 31, 2007. Based on the funded status of pension plan obligations disclosed in our consolidated financial statements for the year ended March 31, 2006, the estimated impact of adopting SFAS No. 158 would be an increase to other long-term liabilities of $0.6 million, an increase to deferred tax assets of $0.2 million and an reduction to shareholders’ equity through the recognition of other comprehensive loss of $0.4 million. At this time, we do not expect the March 31, 2007 amounts to be recorded on adoption to be significantly different than estimated.

Additionally, SFAS No. 158 requires an employer to measure the funded status of each of its pension plans as of the date of its year-end statement of financial position. This provision will become effective for us at March 31, 2009. The funded status of two of our pension plans is currently measured as of December 31.

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~~our 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”).

~~Based upon this evaluation, our CEO and our CFO have concluded~~ ~~that our disclosure controls and procedures were effective, as~~ 25 of December 31, 2006, to provide reasonable assurance that information that is required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow for timely decisions regarding disclosure.

InTable Novemberof 2006, the Company’s largest subsidiary implemented a new and more analytical scale and financial reporting information technology system. Contents

Based upon this evaluation, our CEO and our CFO have concluded that our disclosure controls and procedures were effective, as of September 30, 2007 to provide reasonable assurance that information that is required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow for timely decisions regarding disclosure.

There has been no change in our internal control over financial reporting during the three months ended September 30, 2007 that has materially affected, or is 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~~our CFO, does not expect that our disclosure controls ~~and procedures~~ or our internal controls and ~~control~~ procedures over financial reporting will prevent all error and ~~all~~ 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~~a ~~controls and procedures and internal~~ control ~~over~~system ~~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~~ inherent limitations in all control systems, no evaluation of ~~controls~~ controls can provide absolute assurance that all control issues ~~and~~ 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.

30 26

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

On ~~July~~June 17, ~~1998~~2007, ~~Metal~~the ~~Management~~Company ~~Connecticut,~~filed ~~Inc.~~ a complaint (the “~~MM-Connecticut~~Complaint”)~~, a~~ ~~subsidiary~~against ofWheeling-Pittsburgh ~~the~~Steel Corporation ~~Company,~~(“WPSC”) ~~acquired~~in the ~~scrap~~Supreme ~~metal~~Court ~~recycling assets~~ of ~~Joseph~~the A.State of ~~Schiavone~~New ~~Corp.~~York ~~(formerly~~County ~~known~~of asNew ~~Michael Schiavone & Sons, Inc~~York.). The ~~acquired~~Complaint ~~assets~~arises ~~include real~~from ~~property in North Haven, Connecticut upon which~~a ~~MM-Connecticut’s scrap~~ series ~~metal~~of ~~recycling~~purchase ~~operations~~orders ~~are currently performed~~ (the “~~North~~Purchase ~~Haven Facility~~Orders”). issued ~~The~~by ~~owner~~WPSC ofto ~~Joseph~~the ~~A. Schiavone~~Company ~~Corp.~~beginning ~~was~~on ~~Michael~~or ~~Schiavone (“Schiavone”).~~about ~~On March~~ February 3120, ~~2003~~2007, for the ~~Connecticut Department of Environmental Protection (“CTDEP”) filed suit against Joseph A. Schiavone Corp.~~purchase, ~~Schiavone,~~shipment and ~~MM-Connecticut~~ ~~in the~~delivery ~~Superior~~ from ~~Court of~~ the ~~State~~Company ofto ~~Connecticut –~~WPSC ~~Judicial District~~ of ~~Hartford.~~specified Anquantities ~~amended~~and ~~complaint~~types ~~was~~of scrap ~~filed~~metal. byIn the ~~CTDEP~~ ~~on October 21~~Complaint, ~~2003.~~the ~~The~~Company ~~suit~~is ~~alleges,~~seeking ~~among other~~damages ~~things,~~ for ~~that~~ the ~~North~~breach, ~~Haven~~anticipatory ~~Facility~~breach, ~~discharged~~wrongful ~~and~~rejection ~~continues~~and to repudiation ~~discharge~~of ~~contaminants,~~the ~~including~~Purchase ~~oily~~Orders ~~material,~~based ~~into~~on the ~~environment~~ ~~and~~following ~~has~~WPSC actions: ~~failed~~(1) WPSC toaccepted ~~comply~~delivery ~~with~~without ~~the~~objection ~~terms~~ of ~~certain~~ ~~permits~~ approximately ~~and~~$31 million ~~other~~worth ~~filing~~of ~~requirements.~~scrap ~~The~~metal ~~suit~~sold ~~seeks injunctions~~ to ~~restrict~~it ~~MM-Connecticut~~ by ~~from maintaining~~the ~~discharges~~Company ~~and~~but tohas ~~require MM-Connecticut~~failed to ~~remediate~~ ~~the~~make ~~facility.~~payment ~~The~~for ~~suit~~those ~~also~~goods when ~~seeks~~due; ~~civil~~(2) by ~~penalties~~its ~~from all~~conduct, ofWPSC ~~the~~has ~~defendants~~indicated inits intention ~~accordance~~not ~~with~~to ~~Connecticut environmental~~pay ~~statutes.~~for ~~The~~an ~~suit~~additional ~~makes~~amount ~~specific~~of ~~claims against~~approximately ~~Schiavone~~ $8 million ~~and~~in ~~Joseph~~scrap A.metal ~~Schiavone~~purchased ~~Corp.~~by ~~for~~it ~~their~~but ~~alleged~~where payment ~~violations~~ has ofsince ~~environmental~~become ~~laws~~past ~~including,~~due; ~~among~~and ~~other~~(3) WPSC ~~things,~~has blanket ~~Joseph~~ rejected A.scrap ~~Schiavone~~metal ~~Corp.’s~~as ~~failure~~nonconforming, toin ~~comply~~some ~~with~~cases ~~the~~even before ~~Connecticut~~ the ~~Property~~scrap ~~Transfer~~metal ~~Act~~was ~~when~~delivered itand ~~sold~~inspected, ~~the~~and ~~North~~without ~~Haven~~giving ~~Facility to MM-Connecticut. At this stage,~~ the Company isan ~~not~~opportunity ~~able~~ to ~~predict MM-Connecticut’s potential~~cure ~~liability in connection with this action or~~ any ~~required~~ ~~investigation~~goods ~~and/or~~alleged ~~remediation.~~by ~~The~~WPSC ~~Company believes~~to ~~that~~ be ~~MM-Connecticut~~nonconforming ~~has meritorious~~as ~~defenses~~required toby ~~certain of~~ the ~~claims~~Purchase ~~asserted~~Orders inand the ~~suit~~ Uniform ~~and~~Commercial ~~MM-Connecticut intends~~Code. toStated ~~vigorously~~in ~~defend~~terms ~~itself~~of ~~against~~tonnage, the ~~claims. In~~ ~~addition,~~ Complaint ~~the~~alleges ~~Company~~that ~~believes~~WPSC ithas ~~is entitled to indemnification~~rejected ~~from~~ and/or repudiated ~~Joseph~~agreed A.Purchase ~~Schiavone~~Orders ~~Corp.~~for ~~and~~approximately ~~Schiavone~~86,400 ~~for~~tons of ~~some~~scrap ormetal, ~~all~~ of ~~the~~ ~~obligations~~which ~~and~~76,800 ~~liabilities~~tons ~~that~~had ~~may~~not beyet ~~imposed~~been ~~on MM-Connecticut~~shipped inor ~~connection~~ which ~~with~~is ~~this~~en ~~matter~~route ~~under~~to ~~the~~WPSC ~~various~~and ~~agreements governing~~9,600 ~~its~~tons ~~purchase~~ of which the ~~North~~Company has ~~Haven~~already ~~Facility~~delivered ~~from~~to ~~Joseph A. Schiavone Corp.~~WPSC, asin ~~well~~addition asto ~~for costs associated with~~ the approximately ~~undisclosed~~ 16,000 ~~conditions~~tons of ~~the~~scrap ~~property~~metal previously rejected. The ~~Company cannot~~damages ~~provide~~ being ~~assurances~~sought ~~that~~includes ~~Joseph~~the A.contractual ~~Schiavone~~price ~~Corp.~~of orthe ~~Schiavone~~goods, plus ~~will~~ incidental ~~have~~damages, ~~sufficient~~costs ~~resources~~and todisbursements ~~fund~~of ~~any~~the oraction, prejudgment ~~all~~interest ~~indemnifiable claims~~and tosuch ~~which~~other ~~the~~relief ~~Company~~as may be ~~entitled~~just and proper.

In a ~~letter~~related ~~dated~~matter, ~~July~~on June 137, ~~2005~~2007, the Company filed a ~~MM-Connecticut~~ notice ~~and~~of motion for summary judgment in lieu of a complaint (the “Notice”) against Esmark Incorporated, Sun Steel Company ~~received~~LLC, ~~notification~~Century ~~from~~Steel ~~Schiavone~~Company ofLLC, ~~his~~North ~~demand~~American Steel ~~seeking~~ Company ~~indemnification~~LLC, ~~(including~~Great ~~the~~Western ~~advance~~Steel ofCompany ~~all~~LLC, ~~costs~~Electric Coating Technologies Bridgeview LLC, U.S. Metals & Supply ~~charges~~ LLC, ~~and~~Miami ~~expenses~~Valley ~~incurred~~Steel byService, ~~Schiavone~~Inc., inPremier ~~connection~~Resource ~~with~~Group ~~his~~ LLC, ~~defense)~~Independent ~~from~~Steel Company LLC, Electric Coating ~~MM-Connecticut~~ Technologies ~~and~~LLC, ~~the~~Esmark Realty LLC, Century Steel Realty LLC, ~~Company~~ Great toWestern ~~those~~Realty ~~claims~~LLC, ~~made~~Isco ~~against~~Realty ~~Schiavone~~LLC, inMiami ~~the~~Valley ~~action~~Realty ~~brought~~ LLC, bySun ~~CTDEP.~~Steel ~~Schiavone’s~~Realty ~~demand~~LLC, ~~refers~~U.S. Metals toRealty ~~his~~LLC ~~employment~~ (collectively, ~~agreement~~“Esmark”) atin the ~~time~~Supreme ~~and~~Court toof the State ~~certificate~~of New York County of New York. The Company entered into ~~incorporation~~ an ofunconditional guaranty agreement (the “Guaranty”) ~~MM-Connecticut,~~ with Esmark pursuant to which Esmark agreed to unconditionally, ~~provide~~ jointly ~~for~~and ~~indemnification~~severally ~~against~~guarantee ~~claims~~all bymoney ~~reason~~owing ofto ~~his~~the Company ~~being~~ under orthe ~~having~~Purchase ~~been~~Orders awith ~~director,~~WPSC ~~officer,~~without ~~employee~~monetary limit. Therefore, orthe ~~agent~~Company filed the Notice to seek payment of ~~MM-Connecticut~~ approximately $31 million (reduced to approximately $21 million on September 5, or2007 to reflect interim ~~serving~~ payments) orcurrently ~~having~~past ~~served~~due atunder Purchase Orders pursuant to the ~~request~~express terms and conditions of ~~MM-Connecticut~~ asthe ~~a director~~Guaranty, ~~officer~~together with interest, ~~employee~~expenses orand ~~agent~~reasonable ofattorneys’ ~~another~~fees. ~~corporation,~~On ~~partnership~~ October 3, ~~joint~~2007 ~~venture,~~the ~~trust,~~court ordenied ~~other~~the ~~enterprise~~motion tofor the summary ~~fullest~~ judgment ~~extent~~in ~~permitted~~lieu byof ~~applicable~~complaint ~~law.~~and, ~~The~~pursuant ~~Company~~to ~~believes~~applicable court ~~that~~ rules, ~~MM-Connecticut~~the ~~has meritorious~~Notice ~~defenses~~was toconverted ~~Schiavone’s~~into ~~indemnification~~a ~~demand.~~complaint and the action against Esmark will now proceed. The Company ~~has~~intends ~~also~~to ~~asserted~~seek additional ~~its~~monies, ~~own~~together ~~claims~~with ~~for~~interest, ~~indemnification~~expenses and ~~against~~ attorneys’ ~~Schiavone~~fees, ~~pursuant~~as topayments ~~the~~become ~~terms~~due ofand ~~the~~owing ~~asset~~in ~~purchase~~the ~~agreement~~ ordinary course.

The Company ~~has~~intends ~~worked with an independent environmental consultant~~ to ~~implement~~vigorously apursue ~~CTDEP~~its ~~approved~~rights ~~characterization~~and ~~plan~~remedies ~~jointly~~ directly ~~funded~~against byWPSC ~~Schiavone~~ and ~~the~~against ~~Company.~~Esmark ~~The~~from ~~Company~~the isunlimited and ~~continuing~~ unrepudiated ~~its~~Guaranty, ~~efforts~~but tothere ~~reach~~can anbe ~~acceptable~~no ~~settlement~~assurance ~~with the~~as ~~other parties with respect~~ to the outcome ~~CTDEP~~of ~~action,~~these ~~but~~actions ~~it cannot~~or ~~provide~~their ~~assurances~~effect ~~that~~on ~~such~~the aCompany’s financial ~~settlement~~condition ~~will~~or inresults ~~fact~~of ~~be reached~~operations.

Schiavone Corp. have denied any liability to the Company and asserted various counterclaims for indemnification. While at this preliminary stage the Company is unable to determine the outcome or potential amount of recovery, the Company believes that its claims are meritorious. The Company intends to vigorously defend the counterclaims asserted by Schiavone and Joseph A. Schiavone Corp. in the arbitration.

On December 15, 2006, the Company filed an application for prejudgment remedy and a motion for disclosure of assets against Schiavone in the U.S. District Court for the District of Connecticut to identify and preserve Schiavone’s assets during the pendency of the arbitration proceedings so that an award in the Company’s favor may be satisfied in the event the Company prevails. At this preliminary stage, the Company is unable to determine the likelihood of success, but believes that its arguments are meritorious.

Item 1A. Risk Factors.

~~Our~~ There ~~Annual~~have ~~Report~~been ~~on Form 10-K~~no ~~for~~material ~~the year~~changes ~~ended~~in ~~March 31,~~our ~~2006 includes a detailed discussion of~~ risk factors ~~that~~from those ~~could~~previously ~~adversely~~disclosed ~~affect~~in our ~~business,~~Annual ~~results of~~Report ~~operations and financial condition. There have been no~~on ~~material~~ Form 10-K for ~~changes~~fiscal to2007, ~~our~~other ~~risk~~than ~~factors~~the ~~included in our Annual~~following: ~~Report.~~

~~Item~~ Risks associated 2.with ~~Unregistered~~our ~~Sales~~pending ofmerger ~~Equity~~with ~~Securities and Use of Proceeds~~Sims

On In ~~September 8, 2006,~~ the ~~Company announced that its Board~~ of event ~~Directors~~our ~~authorized~~merger awith ~~stock~~Sims ~~repurchase~~is ~~program for up to 2.7 million shares of common stock. The stock repurchase program does~~ not ~~have~~consummated, ~~an expiration date but may be terminated by our Board of Directors at any time. The Company’s Credit Agreement limits stock repurchases to $100 million during~~ the ~~term~~price of ~~the Credit Agreement. A summary of~~ our ~~common stock~~ ~~repurchases in the three months ended December 31, 2006 is set forth in the following table. All such shares of common~~ stock ~~were~~may ~~repurchased~~be ~~pursuant to open market transactions~~affected.

					Total Number of		Maximum Number
	Total				Shares Purchased		of Shares that May
	Number of		Average		as Part of Publicly		Yet be Purchased
	Shares		Price Paid		Announced		Under the
Period	Purchased		per Share		Programs		Programs
October 1, 2006 – October 31, 2006		112,000	$	27.55		112,000		2,056,700
November 1, 2006 – November 30, 2006		70,000		27.88		70,000		1,986,700
December 1, 2006 – December 31, 2006		50,100		37.04		50,100		1,936,600
Total		232,100	$	29.70		232,100

Our closing stock price was $48.86 on September 21, 2007 and closed at $54.74 on September 25, 2007, after the announcement of the merger. We believe the increase in the stock price is primarily due to the exchange ratio of Sims ADS per share of our common stock, which represents a premium of approximately

32 27

18.2% over the price of the trading day immediately preceding the announcement of the execution of the Merger Agreement. In the event the merger with Sims is not consummated, the price of our common stock may be adversely affected because the stockholders will not receive the premium contemplated by the Merger Agreement.

Further, if the merger is terminated and our board of directors seeks another merger or business combination, stockholders cannot be certain that we will be able to find a party willing to pay an equivalent or better consideration than the consideration to be paid in the proposed merger.

We may fail to realize the anticipated cost savings and other benefits expected from the merger with Sims.

We may fail to realize the anticipated cost savings and other benefits that we expect to achieve from the merger. Delays encountered by us or Sims in the transition process could have a material adverse effect on our revenues, expenses, operating results and financial condition. Although we expect benefits to result from the merger, there can be no assurance that we will actually realize these anticipated benefits.

Achieving the benefits of the merger will depend in part upon meeting the challenges inherent in the successful combination and integration of global business enterprises of the size and scope of us and Sims and the possible resulting diversion of management attention for an extended period of time, both pre-closing and post-closing. There can be no assurance that we and Sims will meet these challenges and that such diversion will not negatively affect our operations.

Additionally, successful integration of the company with Sims will require us to retain key employees. There can be no assurance that we will be able to retain key employees to the same extent we had been able to retain key employees in the past.

Item 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders was held on September 18, 2007 in New York, New York. At the meeting, our stockholders elected five members to our board of directors pursuant to the following votes:


	Votes in		Votes
Name	Favor		Withheld

Norman R. Bobins		21,666,235		1,340,373
Daniel W. Dienst		22,541,383		465,225
John T. DiLacqua		22,912,005		94,603
Robert Lewon		22,912,171		94,437
Gerald E. Morris		22,910,680		95,928

In addition to electing directors, our stockholders also approved the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2008 by the vote of 22,437,422 in favor, 540,030 against and 29,156 abstentions.

Item 6. Exhibits

Number and Description of Exhibit


2	.1	Agreement and Plan of Merger, dated as of September 24, 2007, by and among Sims Group Limited, MMI Acquisition Corporation, and Metal Management, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated September 24, 2007).
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	Amended and Restated Credit Agreement, dated as of May 9, 2006, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated May 9, 2006).
4	.2	First Amendment to the Amended and Restated Credit Agreement, dated as of October 13, 2006, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated October 13, 2006).
4	.3	Second Amendment to the Amended and Restated Credit Agreement, dated as of January 12, 2007, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated January 12, 2007).
4	.4	Third Amendment to the Amended and Restated Credit Agreement, dated as of May 18, 2007, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.5 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2007).
10	.1	Employment Agreement, dated July 26, 2007 between Daniel W. Dienst and the Company.
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.

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	Amended and Restated Credit Agreement, dated as of May 9, 2006, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated May 9, 2006).
4	.2	Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of October 13, 2006, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated October 13, 2006).
4	.3	Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of January 12, 2007, among Metal Management, Inc. and certain subsidiaries of Metal Management, Inc. specified therein, as borrowers, the lenders party thereto and LaSalle Bank National Association, in its capacity as agent for the lenders (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K dated January 12, 2007).
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.

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)~~

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)~~

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 6, 2007~~

34 Vice President, Finance

and Controller

(Principal Accounting Officer)

Date: November 6, 2007

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InTable Novemberof 2006, the Company’s largest subsidiary implemented a new and more analytical scale and financial reporting information technology system. Contents

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Filing Compare · METAL MANAGEMENT INC