e10vq
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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
    For the quarterly period ended December 31, 2006
 
[ ]
  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
    For the transition period from ________________________ to ________________________
Commission file number 1-33044
 
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)
Registrant’s telephone number, Including Area Code (312) 645-0700
 
      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes X           No  
      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
          Large accelerated filer   Accelerated filer X Non-accelerated filer  
      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes             No X
      As of January 18, 2007, the registrant had 26,320,197 shares of common stock outstanding.
 
 


 

INDEX
                 
        Page
 PART I: FINANCIAL INFORMATION
 
 Item 1.    Financial Statements        
         Consolidated Statements of Operations — three and nine months ended December 31, 2006 and 2005 (unaudited)     1  
         Consolidated Balance Sheets — December 31, 2006 and March 31, 2006 (unaudited)     2  
         Consolidated Statements of Cash Flows — nine months ended December 31, 2006 and 2005 (unaudited)     3  
         Consolidated Statement of Stockholders’ Equity — nine months ended December 31, 2006 (unaudited)     4  
         Notes to Consolidated Financial Statements (unaudited)     5  
 
 Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
 
 Item 3.    Quantitative and Qualitative Disclosures about Market Risk     29  
 
 Item 4.    Controls and Procedures     30  
 PART II: OTHER INFORMATION
 
 Item 1.    Legal Proceedings     31  
 
 Item 1A.    Risk Factors     32  
 
 Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds     32  
 
 Item 6.    Exhibits     33  
 
 Signatures         34  
 302 Certification
 302 Certification
 Section 1350 Certifications


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PART I: FINANCIAL INFORMATION
Item 1.  Financial Statements
METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(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

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METAL MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEETS
(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

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METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(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

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METAL MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(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

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – Basis of Presentation
Organization and Business
      Metal Management, Inc., a Delaware corporation, and its wholly owned subsidiaries (the “Company”) are principally engaged in the business of collecting, 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 16 states. The Company’s ferrous products primarily include shredded, sheared, cold briquetted and bundled scrap metal, and other purchased scrap metal, such as turnings, cast and broken furnace iron. The Company also processes non-ferrous metals including, 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.
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 ferrous and non-ferrous scrap metal sales are recognized when title passes to the customer. Revenues relating to brokered sales are recognized upon receipt of the materials by the customer. Revenues from services are recognized as the service is performed. Sales adjustments related to price and weight differences and allowances for uncollectible receivables are accrued against revenues as incurred.

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
      Revenues by product category were as follows (in thousands):
                                   
    Three Months Ended   Nine Months Ended
         
    December 31,   December 31,   December 31,   December 31,
    2006   2005   2006   2005
                 
Ferrous metals
  $ 300,432     $ 255,731     $ 946,543     $ 747,482  
Non-ferrous metals
    182,680       116,177       558,704       344,650  
Brokerage – ferrous
    35,116       15,437       78,020       42,925  
Brokerage – non-ferrous
    1,391       1,513       6,865       5,040  
Other
    4,346       6,232       14,453       14,928  
                         
 
Net sales
  $ 523,965     $ 395,090     $ 1,604,585     $ 1,155,025  
                         
Recently Issued Accounting Pronouncements
      In June 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, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Any differences between the amounts recognized in the consolidated balance sheet prior to the adoption of FIN 48 and the amounts reported after adoption will 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 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued to eliminate the diversity of practice in how public companies quantify financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006. The Company does not anticipate that the adoption of SAB 108 will have a material impact on its 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. The Company does not anticipate that the adoption of SFAS No. 157 will have a material impact on its 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. The Company will adopt SFAS No. 158 on March 31, 2007. Based on the funded status of pension plan obligations disclosed in the Company’s 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 a reduction to shareholders’ equity through the recognition of other comprehensive loss of $0.4 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, 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 becomes effective for the

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Company for its March 31, 2009 year-end. The funded status of two of the Company’s pension plans are currently measured as of December 31.
NOTE 2 – Stock-Based Compensation
      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.
      Prior to April 1, 2006, the Company accounted for stock-based compensation using the intrinsic value method supplemented by pro forma disclosures in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures.” Under the intrinsic value method, compensation expense for stock options was recorded only if, on the date of the grant, the current fair value of the Company’s common stock exceeded the exercise price of the stock option. Other equity-based awards for which stock-based compensation expense was recorded were generally grants of restricted stock awards which were measured at fair value on the date of grant based on the number of shares granted and the quoted price of the Company’s common stock. Such value was recognized as an expense over the corresponding service period of the awards.
      SFAS No. 123(R) requires forfeitures to be 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.
      As required by SFAS No. 123(R), the Company has included as part of cash flows from financing activities the 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).

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
      The following table summarizes the stock-based compensation expense for stock options, restricted stock awards and the employee stock purchase plan included in the Company’s consolidated statement of operations (in thousands):
                   
    Three months   Nine months
    ended   ended
    December 31,   December 31,
    2006   2006
         
Cost of sales (excluding depreciation)
  $ 51     $ 147  
General and administrative
    1,768       4,652  
Severance and other charges (See Note 4)
    0       179  
             
 
Stock-based compensation expense before income taxes
    1,819       4,978  
 
Income tax benefit
    (486 )     (1,361 )
             
Total stock-based compensation expense after income taxes
  $ 1,333     $ 3,617  
             
      The income tax benefit is lower than the Company’s effective tax rate due to non-deductible stock-based compensation. In the three and nine months ended 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 incremental impact of 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 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, 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):
                   
    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  
             
Valuation Assumptions for Stock Options
      The fair value of each option granted before and after the adoption of SFAS No. 123(R) is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatility is calculated using historical volatility of the Company’s common stock over a period at least equal to the expected life of each

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
      The Company used the following weighted average valuation assumptions to estimate the fair value of options granted in the nine months ended December 31, 2006 and 2005:
                 
    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  
Stock Plans
      The Company has one stock-based compensation plan, the Metal Management, Inc. 2002 Incentive Stock Plan (the “2002 Incentive Stock Plan”). The 2002 Incentive Stock Plan provides for the issuance of up to 4,000,000 shares of common stock of the Company. The Compensation Committee of the Board of Directors has the authority to issue stock awards under the 2002 Incentive Stock Plan to the Company’s employees, consultants and directors over a period of up to ten years. The stock awards can be in the form of stock options, stock appreciation rights or restricted stock grants. As of December 31, 2006, there are approximately 1.5 million shares available for issuance under the 2002 Incentive Stock Plan. Prior to the adoption of the 2002 Incentive Stock Plan, the Company issued warrants to certain employees and directors, of which, as of December 31, 2006, warrants to purchase 17,000 shares of common stock remain outstanding. 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 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, 2006, there was $0.3 million of unrecognized compensation cost related to nonvested stock options which is expected to be recognized by March 31, 2007.

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
      The following table summarizes restricted stock award activity in the nine months ended December 31, 2006:
                 
        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  
             
      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.
Employee Stock Purchase Plan
      The Metal Management, Inc. Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board of Directors and approved by the stockholders 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 assumptions:
         
Expected life (years)
    0.25  
Expected volatility
    41.0 %
Expected dividend yield
    0.25 %
Risk-free interest rate
    4.90 %
Grant date fair value per share
  $ 7.21  
NOTE 3 – Earnings Per Share
      Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average common shares outstanding. Diluted EPS reflects the potential dilution that could occur from the exercise of stock

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
options and warrants and from unvested restricted stock. The following is a reconciliation of the numerators and denominators used in computing EPS (in thousands, except for per share amounts):
                                 
    Three months ended   Nine months ended
         
    December 31,   December 31,   December 31,   December 31,
    2006   2005   2006   2005
                 
Numerator:
                               
Net income
  $ 15,579     $ 15,346     $ 89,541     $ 37,713  
                         
Denominator:
                               
Weighted average common shares, outstanding, basic
    25,532       24,556       25,733       24,429  
Incremental common shares attributable to dilutive stock options and warrants
    170       786       286       806  
Incremental common shares attributable to unvested restricted stock
    393       391       338       298  
                         
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 and nine months ended December 31, 2006, options to purchase 150,000 and 225,089 weighted average shares of common stock, respectively, were excluded from the diluted EPS calculation. In the three and nine months ended December 31, 2005, options to purchase 305,000 and 345,000 weighted average shares of common stock, respectively, were excluded from the diluted EPS calculation. These shares were excluded from the diluted EPS calculation as the option exercise prices were greater than the average market price of the Company’s common stock for the respective periods referenced above, and therefore their inclusion would have been anti-dilutive.
NOTE 4 – Other Balance Sheet Information
Short-term investments
      All investments with original maturities of greater than 90 days are accounted for in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company determines the appropriate classification at the time of purchase. At December 31, 2006, the Company had short-term investments of approximately $26.5 million, which mainly consisted of investments in auction rate securities which are classified as available-for-sale. Auction rate securities consist of tax-free bonds issued by municipalities which mainly carry AAA ratings. Investments in auction rate securities are recorded at cost, which approximates fair value due to their variable interest rates which reset every 7 to 30 days. As a result, these securities are classified as current assets. Despite the long-term nature of their stated contractual maturities, there is a readily liquid market for these securities. As a result, the Company had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from its short-term investments. All income generated from these investments was recorded as other income.

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Inventories
      Inventories for all periods presented are stated at the lower of cost or market. Cost is determined principally on the average cost method. Inventories consist of the following at (in thousands):
                 
    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  
             
Property and Equipment
      Property and equipment consists of the following at (in thousands):
                 
    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  
             
Other Accrued Liabilities
      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

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
options and restricted stock held by the former Executive Vice President. Approximately $124.5 thousand of severance remains to be paid at December 31, 2006.
      In the three months ended December 31, 2006, the Company recognized severance and other charges of approximately $490.0 thousand related to the estimated costs of a proposed settlement of several outstanding claims between the Company and former officers and directors Albert A. Cozzi, Frank J. Cozzi and Gregory P. Cozzi. The Company expects 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 (see Note 10 – Commitments and Contingencies).
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.
      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.

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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  
             

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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.

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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 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”), 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

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 arbitration costs. The arbitration proceeding is in its 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 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.
      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”). In early November 2003, MM-Midwest was served with a Notice of Intent to Sue (the “Notice”) by The Jeff Diver Group, L.L.C., on behalf of the Village of Riverdale, alleging, among other things, that the release or disposal of hazardous substances within the meaning of CERCLA has occurred at

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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). The Notice indicates that the Village of Riverdale intends to file suit against MM-Midwest (directly and as a successor to 138 Scrap) and numerous other third parties under one or both of CERCLA and the Resource Conservation and Recovery Act. At this stage, the Company cannot predict MM-Midwest’s potential liability, if any, in connection with such lawsuit or any required remediation. The Company believes that it has meritorious defenses to certain of the claims outlined in the Notice and MM-Midwest intends to vigorously defend itself against any claims ultimately asserted by the Village of Riverdale. In addition, although the Company believes that it would be entitled to indemnification from the prior owner of 138 Scrap for some or all of the obligations that may be imposed on 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 (i) 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
      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.

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METAL MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
      As a result of internal audits conducted by the Company, the Company determined that current and former employees of 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. As of December 31, 2006, the Company had purchased 763,400 shares of its common stock under this program at a cost of $20.8 million, or at an average cost of $27.29 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
      During the period from November 20, 2000 to June 29, 2001, the Company operated its business as a debtor-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the District of

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METAL MANAGEMENT, INC.
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.

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      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 for the year ended March 31, 2006 (“Annual Report”).
Overview
      We are one of the largest domestic scrap metal recycling companies with approximately 50 facilities in 16 states. We enjoy leadership positions in many markets, such as Birmingham, Chicago, Cleveland, Denver, Hartford, Houston, Memphis, Mississippi, Newark, New Haven, Phoenix, Pittsburgh, Salt Lake City, Toledo and Tucson. 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 and industrial scrap metal, process it into reusable forms and supply the recycled metals to our customers, including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metal brokers. In addition to the buying, processing and marketing of ferrous and non-ferrous scrap metals, we are periodically retained as demolition contractors in certain of our large metropolitan markets in which we dismantle obsolete machinery, buildings and other structures containing metal and, in the process, collect both the ferrous and non-ferrous metals from these sources. At certain of our locations adjacent to commercial waterways, we provide stevedoring services. We also operate a bus dismantling business combined with a bus replacement parts business in Newark, New Jersey.
      We believe that we provide one of the most comprehensive product offerings of both ferrous and non-ferrous scrap metals. Our ferrous products primarily include shredded, sheared, cold briquetted and bundled scrap metal, and other purchased scrap metal, such as turnings, cast and broken furnace iron. We also process non-ferrous scrap metals including, 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 proprietary technologies.
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 the nine months ended December 31, 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 a significant effect on sales volumes we have handled and are able to ship through our scrap yards. Variability of units handled by our scrap yards and variability in units shipped, along with changing metal prices, are key drivers of variations in our operating results.

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      Our national footprint enables us to take advantage 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 ferrous scrap, we are able to leverage our operational flexibility and multifaceted distribution 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 ferrous scrap in the three months ended December 31, 2006, which is a record.
      In the three months ended December 31, 2006, we generated net sales of $524.0 million, pre-tax income of $23.7 million and net income of $15.6 million. In the nine months ended December 31, 2006, we generated net sales of $1.6 billion, pre-tax income of $145.0 million and net income of $89.5 million.
      Our operating results in the three months ended December 31, 2006 reflected lower pre-tax income and net income compared to the first and second quarters of the current fiscal year. This was a result of lower prices and demand for ferrous scrap metal in the U.S. and lower income from joint ventures. Domestic demand for ferrous scrap was lower because U.S. steel mills produced less steel in the three months ended December 31, 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 as $75 per ton from levels at September 2006. Other grades of ferrous scrap also declined but to a lesser degree than factory bundles. Weaker demand for ferrous scrap from U.S. steel mills was mitigated, to an extent, by an increase in demand for ferrous scrap metal from international markets. However, higher freight and other costs associated with export shipments negatively impacted our ferrous margins in the three months ended December 31, 2006. Our non-ferrous operations continued to perform well in the three months ended December 31, 2006 due to favorable pricing and generally strong demand for non-ferrous metals in a quarter historically weaker in demand. Demand for industrial based metals, such as aluminum and copper, was strong in the three months ended December 31, 2006. Demand for nickel-based scrap, such as stainless steel, in the U.S. was generally weaker in the three months ended December 31, 2006 than in the first and second quarters of the current fiscal year. We exported stainless scrap in the three months ended December 31, 2006 to mitigate the weak demand from the U.S., but at lower margins than in the first and second quarters of the current fiscal year.
      Prices for non-ferrous metals were generally higher in the three months ended December 31, 2006 as compared to the three months ended December 31, 2005 although the price of copper declined from $3.56 per pound to $2.85 per pound in the three months ended December 31, 2006 (according to COMEX data). Our non-ferrous sales have increased to represent 34.9% and 34.8% of sales in the three and nine months ended December 31, 2006, respectively, compared to 29.4% and 29.8% in the three and nine months ended December 31, 2005, respectively. 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 industry 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 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) 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

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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.
      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 $128.9 million (32.6%) and $449.6 million (38.9%) to $524.0 million and $1.6 billion in the three and nine months ended December 31, 2006, respectively, compared to consolidated net sales of $395.1 million and $1.16 billion in the three and nine months ended December 31, 2005, respectively. The increase in consolidated net sales was primarily due to higher average selling prices for both ferrous and non-ferrous metals, increased unit shipments, and sales from our recent acquisitions.
Ferrous Sales
      Ferrous sales increased by $44.7 million (17.5%) and $199.0 million (26.6%) to $300.4 million and $946.5 million in the three and nine months ended December 31, 2006, respectively, compared to ferrous sales of $255.7 million and $747.5 million in the three and nine months ended December 31, 2005, respectively. The increase was due to higher average selling prices, increased unit shipments and sales generated from recent

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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 by $66.5 million (57.2%) and $214.0 million (62.1%) to $182.7 million and $558.7 million in the three and nine months ended December 31, 2006, respectively, compared to non-ferrous sales of $116.2 million and $344.7 million in the three and nine months ended December 31, 2005, respectively. The increase was primarily due to higher average selling prices and, to a lesser degree, from increased unit shipments as a result of sales generated from recent acquisitions. 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 (1.9%) and 36.2 million pounds (10.2%), respectively, compared to the three and nine months ended December 31, 2005.
      Our non-ferrous operations have benefited from higher prices for copper, aluminum and stainless steel (nickel base metal) in the three and nine months ended December 31, 2006. The increase in non-ferrous prices was evident in data published by the London Metals Exchange (“LME”) and COMEX. According to COMEX data, average prices for copper were 57.3% and 92.0% higher in the three and nine months ended December 31, 2006, respectively, compared to the three and nine months ended December 31, 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 and nine months ended December 31, 2006 compared to the three and nine months ended December 31, 2005. We believe recent non-ferrous prices are significantly higher than historical average prices due, in part, to increases in industrial production and demand from industrializing countries such as China.
      Our non-ferrous sales are also impacted by the mix of non-ferrous metals sold. Generally, prices for copper are higher than prices for aluminum and stainless steel. In addition, the amount of high-temperature alloys that we sell, and the selling prices for these metals, will impact our non-ferrous sales, as prices for these metals are generally higher than other non-ferrous metals.
Brokerage 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.

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Cost of Sales (excluding Depreciation)
      Cost of sales consists of material costs, freight costs and processing expenses. Cost of sales was $471.7 million and $1.4 billion in the three and nine months ended December 31, 2006, respectively, compared to cost of sales of $346.0 million and $1.03 billion in the three and nine months ended December 31, 2005, respectively. The increase was primarily due to higher material costs for both ferrous and non-ferrous metals.
      Freight costs increased by $17.7 million (61.1%) and $22.1 million (21.8%) in the three and nine months ended December 31, 2006, respectively, from the comparable prior year periods. The increase was primarily due to freight costs incurred in connection with an increase in ferrous scrap sold to export markets. Processing costs increased by $4.4 million (10.7%) and $11.8 million (9.4%) in the three and nine months ended December 31, 2006, respectively, from the comparable prior year periods. The increase was primarily due to processing costs from recent acquisitions.
General and Administrative Expense
      General and administrative expense was $21.9 million and $65.6 million in the three and nine months ended December 31, 2006, respectively, compared to general and administrative expense of $20.5 million and $58.7 million in the three and nine months ended December 31, 2005, respectively. The increase in the nine months ended December 31, 2006 was due to higher compensation expense, professional fees and general and administrative expense from recent acquisitions.
      In the nine months ended December 31, 2006, compensation expense increased by $4.7 million as a result of an increase in bonus accruals and higher headcount primarily attributable to recent acquisitions, and professional fees increased by $0.8 million due to higher legal costs. General and administrative expense incurred from recent acquisitions was $0.8 million and $2.5 million in the three and nine months ended December 31, 2006, respectively.
Depreciation and Amortization
      Depreciation expense was $6.5 million and $19.5 million in the three and nine months ended December 31, 2006, respectively, compared to depreciation expense of $4.9 million and $13.8 million in the three and nine months ended December 31, 2005, respectively. Amortization expense was $0.6 million and $1.8 million in the three and nine months ended December 31, 2006, respectively, compared to amortization expense of $38.9 thousand and $116.5 thousand in the three and nine months ended December 31, 2005, respectively.
      Depreciation expense was higher due to an increase in capital expenditures and 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.
Severance and Other Charges
      In the three months ended June 30, 2006, we recognized severance and other charges of approximately $442.4 thousand related to the termination of our 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 options and restricted stock held by the former Executive Vice President.
      In the three months ended December 31, 2006, we recognized severance and other charges of approximately $490.0 thousand related to the estimated costs of a proposed settlement of several outstanding claims between the company and former officers and directors Albert A. 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.

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Income from Joint Ventures
      Income from joint ventures was $0.4 million and $2.8 million in the three and nine months ended December 31, 2006, respectively, compared to income from joint ventures of $3.0 million and $6.5 million in the three and nine months ended December 31, 2005, respectively. The decline was primarily attributable to the sale of Southern Recycling, LLC in April 2006 (see below), and losses incurred at our joint venture in Nashville in the three months ended December 31, 2006. We currently have 50% ownership interests in three joint ventures.
Interest Expense
      Interest expense was $0.4 million and $1.0 million in the three and nine months ended December 31, 2006, respectively, compared to interest expense of $0.4 million and $1.2 million in the three and nine months ended December 31, 2005, respectively. The decrease in the nine months ended December 31, 2006 was primarily attributable to lower amortization of deferred financing fees costs. Our interest expense primarily consists of amortization of deferred financing costs and unused line fees under our Credit Agreement.
Gain on Sale of Joint Venture Interest
      On April 28, 2006, we and our joint venture partner in Southern Recycling, LLC (“Southern”) sold our membership interests 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 months ended December 31, 2006.
Income Taxes
      In the three and nine months ended December 31, 2006, we recognized income tax expense of $8.1 million and $55.4 million, respectively, resulting in an effective tax rate of 34.2% and 38.2%, respectively. In the three and nine months ended December 31, 2005, our income tax expense was $10.3 million and $25.1 million, respectively, resulting in an effective tax rate of approximately 40% for both periods. The effective tax rate differs from the statutory rate mainly due to discrete and permanent tax items. Discrete items recorded in the three months ended December 31, 2006 was primarily composed of a favorable provision to return adjustment which lowered our effective tax rate.
Net Income
      Net income was $15.6 million and $89.5 million in the three and nine months ended December 31, 2006, respectively, compared to net income of $15.3 million and $37.7 million in the three and nine months ended December 31, 2005, respectively. Net income increased in the nine months ended December 31, 2006 due to higher sales and higher margins on ferrous and non-ferrous metals, net income generated by recent acquisitions, and benefited from the one-time gain recognized on the sale of our ownership interest in Southern.
Liquidity and Capital Resources
      Our sources of liquidity include cash and short-term investments, collections from customers and amounts available under our Credit Agreement. We believe these sources are adequate to fund for day-to-day expenditures, capital expenditures, the payment of cash dividends to stockholders and our stock repurchase program.
      At December 31, 2006, our total indebtedness was $0.3 million (primarily a note payable issued in exchange for a non-compete agreement). We had no borrowings outstanding on our Credit Agreement and had cash and short-term investments of $106.3 million at December 31, 2006.
      On May 9, 2006, we entered into a $300 million secured five-year revolving credit and letter of credit facility, with a maturity date of May 1, 2011 (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, we paid fees and expenses of approximately $0.6 million. Pursuant to the Credit Agreement, we pay a fee on the undrawn portion of the facility that is determined by the leverage ratio (currently .175% per annum). Significant covenants under the Credit Agreement include the satisfaction of a

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leverage ratio and interest coverage ratio. The Credit Agreement permits capital expenditures of up to $90 million for the year ending March 31, 2007. 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 December 31, 2006.
      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 )
      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.
      In the nine months ended December 31, 2006, net cash used in investing activities decreased due to $46.0 million of cash received from the sale of our ownership interest in 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 the nine months ended December 31, 2006, net cash used in financing activities increased due to $20.8 million of cash used to repurchase common stock, $6.0 million of cash used to pay dividends and $3.0 million of cash used to repay long-term debt. We received $11.8 million of cash from the exercise of stock options and Series A warrants.
Future Capital Requirements
      We expect to fund our working capital needs, stock repurchase program, dividend payments and capital expenditures over the next twelve months with cash, short-term investments, and cash generated from operations, supplemented by undrawn borrowing availability under the Credit Agreement. We believe these sources of capital will be sufficient for the next twelve months, although there can be no assurance that this will be the case.
      Capital expenditures were $48.1 million in the nine months ended December 31, 2006. We expect that our total capital expenditures in fiscal 2007 will be in the range of $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

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$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 off-balance sheet arrangements that are likely to have a current or future effect on our financial condition, results of operations or cash flows.
Contractual Obligations
      We have various financial obligations and commitments assumed in the normal course of our operations and financing activities. Financial obligations are considered to represent known future cash payments that we are required to make under existing contractual arrangements, such as debt and lease agreements.
      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 into letters of credit in the ordinary course of operating and financing activities. As of January 18, 2007, we had outstanding letters of credit of $7.0 million, much of which is securing insurance policies.
Critical Accounting Policies
      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.
      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
      Effective April 1, 2006, we adopted the provisions of SFAS No. 123(R). We estimate the fair value of stock options and our employee stock purchase plan using the Black-Scholes option valuation model. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the

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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 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, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Any differences between the amounts recognized in the consolidated balance sheet prior to the adoption of FIN 48 and the amounts reported after adoption will be accounted for as a cumulative-effect adjustment recorded 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 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued to eliminate the diversity of practice in how public companies quantify financial statement misstatements. SAB 108 is effective for fiscal years ending after November 15, 2006. We do not anticipate that the adoption of SAB 108 will have a material impact 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 Annual Report.

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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 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.
      In November 2006, the Company’s largest subsidiary implemented a new and more analytical scale and financial reporting information technology system.
CEO and CFO Certifications.
      As an exhibit to this report, there are “Certifications” of the CEO and CFO. The first form of Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of the quarterly report is the information concerning the controls evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls.
      Our management, including our CEO and the CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II: OTHER INFORMATION
Item 1. Legal Proceedings
      On July 1, 1998, Metal Management Connecticut, Inc. (“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 (“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.
      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 arbitration costs. The arbitration proceeding is in its initial stages. In its initial response in the arbitration proceeding, Schiavone and Joseph A.

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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.
      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.
Item 1A. Risk Factors.
      Our Annual Report on Form 10-K for the year ended March 31, 2006 includes a detailed discussion of risk factors that could adversely affect our business, results of operations and financial condition. There have been no material changes to our risk factors included in our Annual Report.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
      On September 8, 2006, the Company announced that its Board of Directors authorized a stock repurchase program for up to 2.7 million shares of common stock. The stock repurchase program does not have 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 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 repurchased pursuant to open market transactions.
                                 
            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          
                         

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Item 6.  Exhibits
Number and Description of Exhibit
         
  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.

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Table of Contents

SIGNATURES
      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  METAL MANAGEMENT, INC.
  By:  /s/ Daniel W. Dienst
 
 
  Daniel W. Dienst
  Chairman of the Board,
  Chief Executive Officer
  and President
  (Principal Executive Officer)
  By:  /s/ Robert C. Larry
 
 
  Robert C. Larry
  Executive Vice President,
  Finance, Chief Financial
  Officer, Treasurer and Secretary
  (Principal Financial Officer)
  By:  /s/ Amit N. Patel  
 
 
  Amit N. Patel
  Vice President, Finance
  and Controller
  (Principal Accounting Officer)
 
  Date: February 6, 2007

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