METAL MANAGEMENT INC, 10-Q, 1998-08-14

METAL MANAGEMENT INC
10-Q, 1998-08-14
MISC DURABLE GOODS

Previous: METAL MANAGEMENT INC, S-3/A, 1998-08-14

Next: PHOENIX INCOME & GROWTH FUND, N-14/A, 1998-08-14

<PAGE> 1

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 June 30, 1998

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

COMMISSION FILE NO. 0-14836

METAL MANAGEMENT, INC.
(Exact name of Registrant as specified in its charter)

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

500 N. DEARBORN ST., SUITE 405,
CHICAGO, IL 60610
(Address of principal executive offices including 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 [ ]

As of August 7, 1998, the Registrant had 39,099,812 shares of Common Stock
outstanding.
<PAGE> 2

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
Consolidated Condensed Balance Sheets -- June 30, 1998
(unaudited) and March 31, 1998............................ 1
Consolidated Condensed Statements of Operations -- three
months ended June 30, 1998 and 1997 (unaudited)........... 2
Consolidated Condensed Statements of Cash Flows -- three
months ended June 30, 1998 and 1997 (unaudited)........... 3
Consolidated Condensed Statements of Stockholders' Equity --
March 31, 1998 and June 30, 1998 (unaudited).............. 4
Notes to Consolidated Condensed Financial Statements
(unaudited)............................................... 5
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12

PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings........................................... 19
ITEM 2: Changes in Securities....................................... 19
ITEM 5: Other Information........................................... 19
ITEM 6: Exhibits and Reports on Form 8-K............................ 19
SIGNATURES.................................................. 20
Exhibit Index............................................... 21
</TABLE>
<PAGE> 3

PART I: FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

METAL MANAGEMENT, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,244 $ 4,464
Accounts receivable, net.................................. 117,238 122,404
Inventories............................................... 66,068 61,942
Prepaid expenses and other assets......................... 8,446 8,569
-------- --------
Total current assets................................... 203,996 197,379
Property and equipment, net................................. 136,450 109,886
Goodwill and other intangibles, net......................... 210,728 186,503
Investments in joint ventures............................... 7,714 7,496
Other assets................................................ 1,023 1,162
-------- --------
Total assets........................................... $559,911 $502,426
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 63,177 $ 66,845
Other accrued liabilities................................. 16,104 17,076
Current portion of notes payable to related parties....... 11,580 10,830
Current portion of long-term debt......................... 934 1,047
-------- --------
Total current liabilities.............................. 91,795 95,798
Long-term notes payable to related parties, less current
portion................................................... 10,830 31,762
Long-term debt, less current portion........................ 182,036 107,827
Deferred taxes.............................................. 13,422 11,922
Other liabilities........................................... 2,111 2,339
-------- --------
Total liabilities...................................... 300,194 249,648
Stockholders' equity:
Convertible preferred stock - Series A.................... 12,147 13,981
Convertible preferred stock - Series B.................... 18,753 19,027
Common stock.............................................. 353 341
Warrants.................................................. 46,547 45,870
Additional paid-in-capital and other...................... 210,916 200,150
Accumulated deficit....................................... (28,999) (26,591)
-------- --------
Total stockholders' equity............................. 259,717 252,778
-------- --------
Total liabilities and stockholders' equity............. $559,911 $502,426
======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements

1
<PAGE> 4

METAL MANAGEMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales................................................... $214,951 $82,105
Cost of sales............................................... 195,202 74,731
-------- -------
Gross profit................................................ 19,749 7,374
Operating expenses:
General and administrative................................ 11,545 4,210
Depreciation and amortization............................. 4,389 1,314
Merger expenses........................................... 932 0
-------- -------
Total operating expenses.................................... 16,866 5,524
-------- -------
Operating income from continuing operations................. 2,883 1,850
Income (loss) from joint ventures........................... (160) 130
Interest expense............................................ 4,933 1,520
Interest and other income, net.............................. 569 95
-------- -------
Income (loss) from continuing operations before income
taxes, discontinued operations and extraordinary charge... (1,641) 555
Provision (benefit) for income taxes........................ (489) 269
-------- -------
Income (loss) from continuing operations before discontinued
operations and extraordinary charge....................... (1,152) 286
Discontinued operations:
Gain on sale of discontinued operations, net of taxes..... 47 101
-------- -------
Income (loss) before extraordinary charge................... (1,105) 387
Extraordinary charge for early retirement of debt, net of
taxes..................................................... 862 0
-------- -------
Net income (loss)........................................... (1,967) 387
Preferred stock dividends................................... 441 0
-------- -------
Net income (loss) applicable to Common Stock................ $ (2,408) $ 387
======== =======
Basic earnings (loss) per common share for:
Continuing operations..................................... $ (0.05) $ 0.02
Gain on sale of discontinued operations................... 0.00 0.01
Extraordinary charge...................................... (0.02) 0.00
-------- -------
Net income (loss) applicable to Common Stock.............. $ (0.07) $ 0.03
======== =======
Weighted average shares outstanding......................... 34,284 12,956
Diluted earnings (loss) per common share for:
Continuing operations..................................... $ (0.05) $ 0.02
Gain on sale of discontinued operations................... 0.00 0.01
Extraordinary charge...................................... (0.02) 0.00
-------- -------
Net income (loss) applicable to Common Stock.............. $ (0.07) $ 0.03
======== =======
Weighted average diluted shares outstanding................. 34,284 14,933
</TABLE>

The accompanying notes are an integral part of the financial statements

2
<PAGE> 5

METAL MANAGEMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from continuing operations:
Net income (loss) from continuing operations................ $ (1,152) $ 286
Adjustments to reconcile net income (loss) from continuing
operations to cash flows from continuing operations:
Discontinued operations.............................. 59 101
Extraordinary charge on retirement of debt........... (862) 0
Depreciation and amortization........................ 4,389 1,314
Amortization of debt issuance costs.................. 380 0
Other................................................ (99) (140)
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable, net............................. 6,784 (7,672)
Inventories.......................................... (1,767) 218
Accounts payable..................................... (4,764) 2,651
Other................................................ (3,220) (3,067)
--------- -------
Cash flows from continuing operations....................... (252) (6,309)
Cash flows used by investing activities:
Purchases of property and equipment....................... (4,751) (952)
Costs of operating leases buyout.......................... (9,777) 0
Acquisitions, net of cash acquired........................ (17,458) (6,288)
Other..................................................... 118 325
--------- -------
Net cash used by investing activities....................... (31,868) (6,915)
Cash flows provided by financing activities:
Net borrowings on lines-of-credit......................... 0 5,610
Issuances of long-term debt............................... 556,581 2,923
Repayments of long-term debt.............................. (506,645) (10,844)
Fees paid to issue long-term debt......................... (9,230) 0
Penalties paid on early retirement of debt................ (973) 0
Issuances of Common Stock................................. 167 13,557
--------- -------
Net cash provided by financing activities................... 39,900 11,246
--------- -------
Net increase (decrease) in cash and cash equivalents........ 7,780 (1,978)
Cash and cash equivalents at beginning of period............ 4,464 5,768
--------- -------
Cash and cash equivalents at end of period.................. $ 12,244 $ 3,790
========= =======
Supplemental cash flow information:
Interest paid............................................... $ 4,477 $ 1,652
Income taxes paid........................................... $ 2,302 $ 790
</TABLE>

The accompanying notes are an integral part of the financial statements

3
<PAGE> 6

METAL MANAGEMENT, INC.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK ------------------- ADDITIONAL
------------------- NUMBER OF PAID-IN- ACCUMULATED
SERIES A SERIES B SHARES AMOUNT WARRANTS CAPITAL DEFICIT TOTAL
-------- -------- --------- ------ -------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1998... $13,981 $19,027 34,080,830 $341 $45,870 $200,150 $(26,591) $252,778
Conversion of preferred
stock..................... (1,834) (274) 254,025 2 0 2,472 0 366
Equity issued for
acquisitions.............. 0 0 902,634 9 699 8,571 0 9,279
Preferred stock dividends... 0 0 0 0 0 0 (441) (441)
Other....................... 0 0 53,935 1 (22) (277) 0 (298)
Net loss.................... 0 0 0 0 0 0 (1,967) (1,967)
------- ------- ---------- ---- ------- -------- -------- --------
Balance at June 30, 1998.... $12,147 $18,753 35,291,424 $353 $46,547 $210,916 $(28,999) $259,717
======= ======= ========== ==== ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements

4
<PAGE> 7

METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 -- INTERIM FINANCIAL STATEMENTS

The accompanying unaudited consolidated condensed financial statements
include the accounts of Metal Management, Inc. and its subsidiaries (herein
referred to as "MTLM" or the "Company") and have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
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
condensed financial statements reflect, in the opinion of management, all
material adjustments (which include only normal recurring adjustments) necessary
to fairly state the financial position and the results of operations for the
periods presented and the disclosures herein are adequate to make the
information presented not misleading. 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, 1998
and in the Company's Current Report on Form 8-K dated July 1, 1998.

In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.

NOTE 2 -- MERGERS AND ACQUISITIONS

Mergers accounted as Pooling-of-Interests

On May 28, 1998, the Company merged with R&P Holdings, Inc. ("Bluestone")
through a tax-free stock-for-stock exchange. The Company issued 1,034,826 shares
of common stock, par value $.01 per share ("Common Stock") in exchange for all
the outstanding common stock of Bluestone. The merger is accounted for as a
pooling-of-interests under Accounting Principles Board (APB) No. 16, "Business
Combinations." All financial data of the Company, including the Company's
previously issued financial statements presented in this Form 10-Q, have been
restated to include the historical financial information of Bluestone in
accordance with generally accepted accounting principles and pursuant to
Regulation S-X. Certain reclassifications were made to Bluestone financial
statements to conform to the Company's presentation.

5
<PAGE> 8
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The following table presents net sales and net income (loss) applicable to
Common Stock for the three months ended June 30. The only conforming accounting
adjustment changes Bluestone inventory valuation methodology from a LIFO basis
to a FIFO basis (in thousands):

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET SALES:
The Company -- historical............................... $199,152 $54,435
Bluestone............................................... 15,799 27,670
-------- -------
Combined................................................ $214,951 $82,105
======== =======
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK:
The Company -- historical............................... $ (1,215) $ 221
Bluestone............................................... (378) 187
Conforming accounting adjustments, net of tax........... 0 (122)
-------- -------
Net income (loss) from continuing operations......... (1,593) 286
Net income from discontinued operations................. 47 101
Extraordinary charge on early retirement of debt........ (862) 0
-------- -------
Combined................................................ $ (2,408) $ 387
======== =======
</TABLE>

In connection with the Bluestone merger, the Company recognized merger
expenses of approximately $932,000 during the quarter. Merger expenses consisted
primarily of professional fees and expenses for accountants, attorneys, and
investment bankers as well as other related charges.

Acquisitions completed during the three months ended June 30, 1998

- In April 1998, the Company through its Cozzi Iron & Metal, Inc. ("Cozzi")
subsidiary, acquired certain assets of Midwest Industrial Metals Corp.,
located in Chicago, Illinois.

- In May 1998, the Company acquired substantially all of the assets of 138
Scrap, Inc. and Katrick, Inc., located in Riverdale, Illinois.

- In June 1998, the Company acquired certain assets related to the scrap
metal businesses of Goldin Industries, Inc., Goldin of Alabama, Inc., and
Goldin of Louisiana, Inc. (collectively "Goldin"). Goldin's operations
(now operated under the name Metal Management Gulf Coast, Inc.) are
located in Gulfport, Mississippi, Mobile, Alabama and Harvey, Louisiana.

- In June 1998, a wholly owned subsidiary of the Company merged with and
into Newell Recycling of Denver, Inc., which subsequently changed its
name to Newell Recycling West, Inc. ("Newell"). Newell operates
facilities in Denver and Colorado Springs, Colorado. In June 1998, Newell
acquired substantially all of the assets of Newell Recycling of Utah,
LLC, in a related transaction.

The purchase consideration for the above acquisitions was as follows (in
thousands):

<TABLE>
<S> <C>
Shares of restricted Common Stock issued.................... 903
Warrants issued to purchase Common Stock.................... 150
Cash paid, including transaction costs...................... $17,753
Value of Common Stock issued................................ 8,580
Value of warrants issued.................................... 699
Promissory notes issued..................................... 750
-------
Total purchase consideration................................ $27,782
=======
</TABLE>

6
<PAGE> 9
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The allocation of purchase consideration was as follows at June 30 (in
thousands):

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Fair value of tangible assets acquired.................... $18,852 $111,954
Goodwill.................................................. 16,153 53,371
Identifiable intangibles.................................. 0 1,834
Liabilities assumed....................................... (7,428) (90,011)
Stock and warrants issued................................. (9,279) (32,563)
Promissory notes and other consideration issued........... (750) (38,089)
------- --------
Cash paid................................................. 17,548 6,496
Less: cash acquired..................................... (90) (208)
------- --------
Net cash paid for acquisitions............................ $17,458 $ 6,288
======= ========
</TABLE>

The above transactions have been accounted for by the purchase method of
accounting and are included in the Company's results of operations from the
effective date of each respective acquisition. The purchase price was allocated
based on estimates of the fair value of assets acquired and liabilities assumed.
These estimates are revised during the allocation period as necessary when
information regarding contingencies becomes available to define and quantify
assets acquired and liabilities assumed. The allocation period varies by
acquisition but does not usually exceed one year. It is not expected that the
finalization of purchase accounting will have any significant effect on the
financial position and results of operations of the Company.

Acquisitions completed subsequent to June 30, 1998

- In July 1998, the Company acquired the common stock of Naporano Iron &
Metal, Co. and Nimco Shredding Co. (collectively "Naporano"), located in
Newark, New Jersey.

- In July 1998, the Company acquired substantially all of the assets of
Michael Schiavone & Sons, Inc. and related entities, located in North
Haven and Torrington, Connecticut.

- In July 1998, the Company acquired substantially all of the assets of M.
Kimerling & Sons, Inc., located in Birmingham, Alabama.

- In July 1998, the Company acquired substantially all of the assets of
Nicroloy Company, located in Heidelberg, Pennsylvania.

- In July 1998, the Company through its Cozzi subsidiary, acquired certain
assets of Midwest Metallics, L.P., located in Chicago, Illinois.

The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company, Reserve Iron & Metal, Limited
Partnership ("Reserve"), the Isaac Corporation and Ferrex Trading Corporation
(collectively, "Isaac"), Proler Southwest, Inc. and Proler Steelworks, L.L.C.
(collectively, "Proler"), Cozzi, Aerospace Metals, Inc. ("Aerospace"), and
Naporano as if these acquisitions had occurred on April 1, 1997, and a summary
consolidated balance sheet of the Company and Naporano as if the acquisition of
Naporano occurred on June 30, 1998. The Reserve, Isaac, Proler, Cozzi and
Aerospace acquisitions were completed by the Company during fiscal 1998. The
unaudited pro forma results have been prepared for comparative purposes only and
include certain adjustments, such as additional depreciation expense as a result
of a step-up in basis of the fixed assets acquired, additional amortization
expense as a result of goodwill and interest expense related to cash portions of
purchase consideration and assumed debt. The pro forma statement of operations
includes non-recurring expenses, merger and transaction costs of $4.0 million
for the three months ended June 30, 1998 and $33.7 million for the twelve months
ended March 31, 1998. The pro forma statement of operations for the twelve
months ended March 31, 1998 also includes a charge for a

7
<PAGE> 10
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

$5.6 million non-cash dividend on the beneficial conversion feature of
Convertible Preferred Stock. The pro forma results do not purport to be
indicative of the financial position which actually would have resulted had the
acquisitions been in effect on April 1, 1997 (in thousands, except share data).

<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1998 MARCH 31, 1998
------------------ -------------------
UNAUDITED UNAUDITED
<S> <C> <C>
STATEMENT OF OPERATIONS
Net sales.................................................. $255,107 $1,020,030
Net loss from continuing operations applicable to Common
Stock.................................................... $ (4,097) $ (37,020)
Basic and diluted net loss from continuing operations
applicable to Common Stock............................... $ (0.10) $ (1.02)
</TABLE>

CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998

<TABLE>
<S> <C>
ASSETS:
Current assets.............................................. $217,565
Long-term assets............................................ 437,290
--------
Total assets........................................... $654,855
========
LIABILITIES AND EQUITY:
Current liabilities......................................... $100,326
Long-term liabilities....................................... 275,126
--------
Total liabilities...................................... 375,452
Convertible preferred stock................................. 30,900
Common Stockholders' Equity................................. 248,503
--------
Total liabilities and equity................................ $654,855
========
</TABLE>

In addition to the completed acquisitions, the Company is in various stages
of negotiation and related processes to acquire additional scrap metals
recycling and related companies.

NOTE 3 -- 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
consisted of the following categories at (in thousands):

<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Ferrous metals...................................... $39,686 $35,934
Non-ferrous metals.................................. 24,235 25,222
Other............................................... 2,147 786
------- -------
$66,068 $61,942
======= =======
</TABLE>

NOTE 4 -- DEBT

Senior Credit Facility

On March 31, 1998, the Company and its subsidiaries entered into a three
year credit facility (the "Senior Credit Facility") with BT Commercial
Corporation, as agent for the lenders (the "Agent") and certain commercial
lending institutions. The Senior Credit Facility, as amended, provides for a
revolving credit and letter of credit facility of $250 million, subject to
borrowing base limitations (described below).

8
<PAGE> 11
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The Senior Credit Facility bears interest at a floating rate per annum equal to
(at the Company's option): (i) 1.75% over LIBOR or (ii) 0.5% over the agent
lender's prime rate. The Company pays an unused line fee of .375% and is subject
to debt covenants including an interest coverage ratio and limitations with
respect to capital expenditures. The Senior Credit Facility is available for
working capital and general corporate purposes, including acquisitions. The
obligations of the Company and its subsidiaries under the Senior Credit Facility
are secured by a security interest in substantially all of the assets and
properties of the Company and its subsidiaries, including pledges of capital
stock of the Company's subsidiaries. Availability of loans and letters of credit
under the Senior Credit Facility is generally limited to a borrowing base of 85%
of eligible accounts receivable, 70% of eligible inventory and a fixed asset
sublimit ($55.6 million as of June 30, 1998) that amortizes on a quarterly
basis. At June 30, 1998, the Company had borrowings of approximately $0.1
million outstanding under the Senior Credit Facility.

During the quarter, the Company borrowed under the Senior Credit Facility
to refinance existing secured debt, buyout certain operating leases and pay
prepayment penalties associated with the early retirement of debt. In connection
with the refinancing of debt, the Company recognized an extraordinary charge of
approximately $862,000 during the three months ended June 30, 1998 consisting of
the following (in thousands):

<TABLE>
<S> <C>
Prepayment penalties........................................ $ 973
Write-off of related unamortized financing costs............ 487
------
Extraordinary charge before income tax benefit.............. 1,460
Income tax benefit.......................................... 598
------
Net extraordinary charge.................................... $ 862
======
</TABLE>

Senior Subordinated Notes

On May 13, 1998, the Company issued $180 million of 10.0% Senior
Subordinated Notes due on May 15, 2008 (the "Notes") in a private placement (the
"Subordinated Debt Placement"). Interest on the Notes is payable semi-annually.
The Company received net proceeds of $174.6 million in the Subordinated Debt
Placement. The Notes are general unsecured obligations of the Company and are
subordinated in right to payment to all senior debt of the Company, including
the indebtedness of the Company under the Senior Credit Facility. The Company's
payment obligations are jointly and severally guaranteed by the Company's
current and certain future subsidiaries. The proceeds of the Notes were used to
repay approximately $119.0 million outstanding under the Company's Senior Credit
Facility and approximately $19.1 million of notes payable to related parties.
The balance of the proceeds was invested in marketable securities held for
working capital and general corporate purposes, including acquisitions.

Except as described below, the Notes are not redeemable at the Company's
option prior to May 15, 2003. After May 15, 2003, the Notes are redeemable by
the Company at the redemption prices (expressed as a percentage of the principal
amount and rounded to the nearest whole percentage) plus accrued and unpaid
interest, if redeemed during the twelve month period beginning on May 15 of each
of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105%
2004........................................................ 103%
2005........................................................ 102%
2006 and thereafter......................................... 100%
</TABLE>

9
<PAGE> 12
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

Also, prior to March 15, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes at a redemption price of 110% of the
principal amount of the Notes, plus accrued and unpaid interest from the
proceeds of one or more sales of Common Stock. The Notes are also redeemable at
the option of the holder thereof at a repurchase price of 101% of the principal
amount thereof, plus accrued and unpaid interest in the event of certain change
of control events with respect to the Company.

The Indenture governing the Notes (the "Indenture") contains certain
covenants that limit, among other things, the ability of the Company and its
subsidiaries to (i) incur additional indebtedness (including by way of
guarantee), subject to certain exceptions, unless the Company meets a fixed
charge ratio of 2 to 1 or certain other conditions apply; (ii) issue certain
types of securities containing mandatory redemption rights or which otherwise
are redeemable at the option of the holder thereof prior to the maturity of the
Notes; (iii) pay dividends or distributions, or make certain types of
investments or other payments, unless the Company meets a fixed charge coverage
ratio of 2 to 1 and the amount of the dividend or distribution, investment or
other payment (together with all such other dividend, distributions, investments
or other payments made through the date thereof) is less than 50% of the
consolidated net income of the Company from the beginning of the fiscal quarter
immediately following the date of the Indenture through the most recently ended
fiscal quarter plus the aggregate amount of net equity proceeds received by the
Company in such period; (iv) enter into certain transactions with affiliates;
(v) dispose of certain assets; (vi) incur liens securing pari passu or
subordinated indebtedness of the Company; or (vii) engage in certain mergers and
consolidations.

NOTE 5 -- CONVERTIBLE PREFERRED STOCK

The Company's Certificate of Incorporation allows the issuance of up to
4,000,000 shares of preferred stock. During fiscal 1998, the Company issued
25,000 shares of Series A Convertible Preferred Stock, par value $.01 per share,
stated value $1,000 per share (the "Series A Preferred Stock"), and 20,000
shares of Series B Convertible Preferred Stock, par value $.01 per share, stated
value $1,000 per share (the "Series B Preferred Stock").

Dividends on the Series A Preferred Stock and Series B Preferred Stock
accrue, whether or not declared by the Board of Directors, at an annual rate of
6.0% and 4.5%, respectively, of the stated value of each outstanding share of
Series A Preferred Stock and Series B Preferred Stock. Dividends are payable in
cash, or at the Company's option, in additional shares of preferred stock.

The following presents a summary of the Series A Preferred Stock and Series
B Preferred Stock issued and converted during the three months ended June 30,
1998:

<TABLE>
<CAPTION>
SERIES A SERIES B
-------- --------
<S> <C> <C>
Shares outstanding at March 31, 1998........................ 15,094 20,000
Shares converted into Common Stock.......................... (1,830) (274)
------ ------
Shares outstanding at June 30, 1998......................... 13,264 19,726
====== ======
</TABLE>

NOTE 6 -- INCOME (LOSS) PER COMMON SHARE

In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." Per share amounts for the three
months ended June 30, 1997 have been restated to

10
<PAGE> 13
METAL MANAGEMENT, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

conform to the requirements of SFAS No. 128. The following table presents the
components of weighted average diluted shares outstanding (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
INCOME (NUMERATOR):
Net income (loss) from continuing operations............... $(1,152) $ 286
Dividends on convertible preferred stock................... 441 0
------- -------
Net income (loss) applicable to Common Stock............... $(1,593) $ 286
======= =======
SHARES (DENOMINATOR):
Weighted average number of shares outstanding during the
period................................................... 34,284 12,956
Incremental common shares attributable to dilutive stock
options and warrants..................................... 0 1,977
------- -------
Diluted number of shares outstanding during the period..... 34,284 14,933
======= =======
Basic earnings (loss) per common share..................... $ (0.05) $ 0.02
======= =======
Diluted earnings (loss) per common share................... $ (0.05) $ 0.02
======= =======
</TABLE>

Due to the net loss applicable to Common Stock for the three months ended
June 30, 1998, the effect of dilutive stock options and warrants were not
included as their effect would have been anti-dilutive. However, if the Company
would have reported net earnings, the incremental shares attributable to
dilutive stock options and warrants would have been approximately 2,982,000.
Also, the potentially dilutive effect of the Company's convertible preferred
stock were not used in the diluted earnings per share calculation as its effect
was anti-dilutive.

NOTE 7 -- RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued by the FASB in June 1997. This Statement establishes
standards for reporting of selected information about operating segments in
annual financial statements and requires reporting of selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company will not be impacted by SFAS
No. 131.

SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued by the FASB in February 1998. This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. The Company will adopt SFAS No. 132 in fiscal 1999 and does not
expect the impact to be material to the Company.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued by the FASB in June 1998 and is effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company is evaluating SFAS No. 133 to determine its impact on
the consolidated financial statements.

11
<PAGE> 14

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 the Company 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 the Company's business and operations and other such matters are
forward-looking statements. Although the Company believes the expectations
expressed in such forward-looking statements are based on reasonable assumptions
within the bounds of its knowledge of its business, a number of factors could
cause actual results to differ materially from those expressed in any
forward-looking statements, whether oral or written, made by or on behalf of the
Company. These factors are set forth under the caption "Investment
Considerations" appearing in the Company's annual report on Form 10-K for the
year ended March 31, 1998, as the same may be amended from time to time. Some of
the factors which could affect the Company's performance include, among other
things: the effects of leverage on the Company, immediate and future capital
requirements, risk of dilution to existing shareholders, potential inability to
control growth or to successfully integrate acquired businesses, limited
operating history, cyclicality of the metals recycling industry, potential
inability to complete pending acquisitions, commodity price fluctuations,
compliance with environmental, health and safety and other regulatory
requirements applicable to the Company, potential environmental liability, risk
of deterioration in relations with labor unions, control by principal
stockholders and dependence on key management, dependence on suppliers of scrap
metals, concentration of customer risk, competition in the scrap metals
industry, availability of scrap alternatives, stock market volatility and year
2000 compliance.

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
condensed consolidated financial statements and notes thereto included under
Item 1. 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 the
Company's Annual Report on Form 10-K for the year ended March 31, 1998 and in
the Company's Current Report on Form 8-K dated July 1, 1998.

GENERAL OVERVIEW

Metal Management is one of the largest and fastest-growing full service
metals recyclers in the United States, with 59 recycling facilities in 15
states. The Company is a leading consolidator in the metals recycling industry
and has achieved this position primarily through the implementation of its
national strategy of completing and integrating regional acquisitions. The
Company believes that its consolidation strategy will enhance the competitive
position and profitability of the operations that it acquires through improved
managerial and financial resources and increased economies of scale.

Metal Management is primarily engaged in the collection and processing of
ferrous and non-ferrous metals for resale to metals brokers, steel producers,
and producers and processors of other metals. The Company collects industrial
scrap and obsolete scrap, processes it into reusable forms, and supplies the
recycled metals to its customers, including mini-mills, integrated steel mills,
foundries and metals brokers. The Company believes that it provides one of the
most comprehensive offerings of both ferrous and non-ferrous scrap metals in the
industry. The Company's ferrous products primarily include shredded, sheared,
hot briquetted, cold briquetted and bundled scrap and broken furnace iron. The
Company also processes non-ferrous metals, including aluminum, copper, stainless
steel, brass, titanium and high-temperature alloys, using similar techniques and
through application of the Company's proprietary technologies.

The Company's predecessor was incorporated on September 24, 1981 as a
California corporation under the name General Parametrics Corporation, and was
re-incorporated as a Delaware corporation in June 1986 under the same name.
Prior to April 1996, the Company manufactured and marketed color thermal and dye
sublimation printers and related consumables, including ribbons, transparencies
and paper. The Company sold this business in two separate transactions in July
and December of 1996 for $1.3 million in cash and future

12
<PAGE> 15

royalty streams which the Company does not anticipate will result in material
payments to the Company. On April 12, 1996, the Company changed its name to
"Metal Management, Inc."

The Company's Common Stock is traded on the NASDAQ Stock Market under the
trading symbol "MTLM". The Company's principal executive offices are located at
500 North Dearborn Street, Suite 405, Chicago, Illinois 60610, and its telephone
number is (312) 645-0700.

ACQUISITION STRATEGY

In pursuing its acquisition strategy, the Company seeks to identify
companies that (i) have a successful operating history; (ii) are located in
major metropolitan or regional markets (population of 1,000,000 or more) and
present synergies with existing or planned acquisition candidates in a
particular region; (iii) offer strong management which can be retained following
an acquisition; (iv) complement the Company's regional and national customer
base; (v) have a history of high integrity in their management and operations;
(vi) have convenient access to water or rail transportation facilities; (vii) do
not present serious environmental or regulatory issues; and (viii) either have
existing shredder operations or the ability to support the installation of such
equipment. While a target company does not have to meet all of the acquisition
criteria, it is important that a metropolitan or regional "hub" company meet
most of the criteria and that other acquisition candidates that can complement
the operations of the "hub" company are identified within a region.

Once an acquisition candidate has been identified, the Company conducts
financial, legal and operational due diligence investigations of the target
company. This due diligence investigation will generally include an
environmental site assessment and a review of the target company's environmental
compliance procedures and practices, a review of the legal and regulatory
affairs of the target, and a review of the target company's financial books and
records, including an independent audit of its financial statements, in certain
cases.

The Company generally enters into multi-year employment contracts with
certain senior managers of the acquired company which often provide for
incentive compensation in the form of stock options and warrants. In addition, a
significant portion of the purchase price for an acquired company is often paid
in restricted Common Stock. The Company believes that these arrangements provide
strong incentives for the management of the regional operations to maximize the
operating performance of the Company's subsidiaries.

Set forth below is a table identifying the recycling operations acquired by
the Company from April 1996 through August 14, 1998:

<TABLE>
<CAPTION>
LOCATION OF DATE OF
NAME PRINCIPAL PROCESSING FACILITIES ACQUISITION
---- ------------------------------- -----------
<S> <C> <C>
Metal Management Arizona, Inc. Phoenix, Arizona April 1996
("MTLM Arizona")
California Metals Recycling, Inc., Firma, Inc. Los Angeles County, California January 1997
Firma Plastic Co. Inc., MacLeod Metals Co and
Trojan Trading Co. (collectively, "MacLeod")
HouTex Metals Company, Inc. ("HouTex") Houston, Texas January 1997
Reserve Iron & Metal Limited Partnership Cleveland, Ohio May 1997
("Reserve")(1) Chicago, Illinois
Attalla, Alabama
Briquetting Corporation of America, Ferrex Bryan, Ohio June 1997
Trading Corporation, The Isaac Corporation and Cleveland, Ohio
Paulding Recycling, Inc. (collectively, the Dayton, Ohio
"Isaac Group") Defiance, Ohio
Proler Southwest Inc. and Proler Steelworks Houston, Texas August 1997
L.L.C. Jackson, Mississippi
(collectively, "Proler")
</TABLE>

13
<PAGE> 16

<TABLE>
<CAPTION>
LOCATION OF DATE OF
NAME PRINCIPAL PROCESSING FACILITIES ACQUISITION
---- ------------------------------- -----------
<S> <C> <C>
Cozzi Iron & Metal, Inc. ("Cozzi")(2) Chicago, Illinois December 1997
East Chicago, Indiana
Pittsburgh, Pennsylvania
Memphis, Tennessee
Kankakee Scrap Corporation Kankakee, Illinois December 1997
Houston Compressed Steel Corp. Houston, Texas January 1998
Aerospace Metals, Inc. ("Aerospace") Hartford, Connecticut January 1998
Salt River Recycling L.L.C.(3) Phoenix, Arizona January 1998
Accurate Iron & Metal Co.(4) Franklin Park, Illinois February 1998
Superior Forge, Inc. ("Superior") Huntington Beach, California March 1998
Ellis Metals, Inc. Tucson, Arizona March 1998
Midwest Industrial Metals Corp.(4) Chicago, Illinois April 1998
138 Scrap, Inc. and Katrick, Inc. Riverdale, Illinois May 1998
R&P Holdings, Inc., Charles Bluestone Company, Elizabeth, Pennsylvania May 1998
and R&P Real Estate, Inc.(5) Sharon, Pennsylvania
(collectively, "Bluestone")
Goldin Industries, Inc., Goldin Industries Gulfport, Mississippi June 1998
Louisiana, Inc. and Goldin of Alabama, Inc.(6) Mobile, Alabama
Harvey, Louisiana
Newell Recycling of Denver, Inc. and Newell Denver, Colorado June 1998
Recycling of Utah, L.L.C.(7) Colorado Springs, Colorado
Naporano Iron & Metal Co. and Nimco Shredding Newark, New Jersey July 1998
Co. (collectively "Naporano")
Michael Schiavone & Sons, Inc. and related North Haven, Connecticut July 1998
entities Torrington, Connecticut
M. Kimerling & Sons, Inc. Birmingham, Alabama July 1998
Nicroloy Company Heidelberg, Pennsylvania July 1998
Midwest Metallics L.P. Chicago, Illinois July 1998
</TABLE>

- -------------------------
(1) The Attalla, Alabama recycling facility is operated through a joint venture
in which the Company's subsidiary, Reserve, holds a 50% interest.

(2) The Memphis, Tennessee recycling facility is operated through a joint
venture in which the Company's subsidiary, Cozzi, holds a 50% interest.

(3) At the time it was acquired by the Company, Cozzi held a 50% joint venture
interest in Salt River.

(4) The Company purchased substantially all of the assets of Accurate Iron &
Metal Co. and certain of the assets of Midwest Industrial Metals Corp., both
of which have been integrated into the Company's Cozzi operations.

(5) The Sharon, Pennsylvania recycling facility is operated through a joint
venture in which the Company's subsidiary, Bluestone, holds a 50% interest.

(6) A new subsidiary, Metal Management Gulf Coast, Inc., was formed with which
the Company purchased substantially all of the scrap metal assets of Goldin.

(7) A new subsidiary, Newell Recycling West, Inc. was formed and merged with
Newell Recycling of Denver, Inc. (with Newell Recycling West, Inc. surviving
the merger). Concurrently therewith, Newell Recycling West, Inc. purchased
substantially all of the scrap metal assets of Newell Recycling of Utah,
L.L.C.

14
<PAGE> 17

RESULTS OF OPERATIONS

On May 28, 1998, the Company merged with Bluestone through a tax-free
stock-for-stock exchange. The merger is accounted for as a pooling-of-interests
under Accounting Principles Board (APB) No. 16, "Business Combinations." All
information set forth below includes the historical information of Bluestone.

The Company's revenues consist primarily of revenues derived from the sale
and brokerage of scrap metals. The Company recognizes revenues from processed
product sales at the time of shipment. Revenues related to brokerage sales are
generally recognized upon receipt of the material by the customer.

Cost of sales consists primarily of the cost of metals sold, direct and
indirect labor and related taxes and benefits, repairs and maintenance, and
freight.

General and administrative expenses include management salaries, clerical
and administrative costs, professional services, facility rentals and related
insurance and utility costs, as well as costs related to the Company's marketing
and business development activities.

Merger expenses consist of transaction costs incurred in connection with
the Company's merger with Bluestone, which was accounted for as a
pooling-of-interests.

Other income and expense consists principally of interest income, gains or
losses on the sale of fixed assets.

Consolidated net sales for the three months ended June 30, 1998 and 1997 in
broad product categories were as follows (in thousands):

<TABLE>
<CAPTION>
6/30/98 (FISCAL 1999) 6/30/97 (FISCAL 1998)
-------------------------- -------------------------
COMMODITY WEIGHT NET SALES % WEIGHT NET SALES %
- --------- ------ --------- - ------ --------- -
<S> <C> <C> <C> <C> <C> <C>
Ferrous metals (tons).......... 893 $110,172 51.3 217 $27,354 33.3
Non-ferrous metals (lbs)....... 127,054 66,146 30.8 67,201 36,825 44.9
Brokerage - ferrous (tons)..... 251 32,324 15.0 143 9,111 11.1
Brokerage - non ferrous
(lbs)........................ 11,246 5,599 2.6 21,117 8,474 10.3
Other.......................... -- 710 0.3 -- 341 0.4
-------- ---- ------- ----
$214,951 100% $82,105 100%
======== ==== ======= ====
</TABLE>

Consolidated net sales for the three months ended June 30, 1998 were $215.0
million compared with consolidated net sales of $82.1 million for the three
months ended June 30, 1997. The significant increase in consolidated net sales
is principally due to the inclusion of net sales of the companies acquired by
the Company since June 30, 1997.

Ferrous sales of processed materials represented 51.3% of consolidated net
sales for the three months ended June 30, 1998 compared to 33.3% of consolidated
net sales for the three months ended June 30, 1997. The significant increase in
ferrous sales, both in tons sold and as a percentage of total net sales, is due
primarily to the inclusion of a full quarter's ferrous sales of Reserve and the
Isaac Group, which were acquired during the first quarter of fiscal 1998 and
ferrous sales of Proler and Cozzi, which were acquired subsequent to June 30,
1997.

Non-ferrous sales of processed materials represented 30.8% of consolidated
net sales for the three months ended June 30, 1998 compared to 44.9% of
consolidated net sales in the three months ended June 30, 1997. The decrease in
the percentage of non-ferrous sales is due to the acquisitions of the Isaac
Group, Proler and Cozzi, which primarily sell ferrous metals. The increase in
pounds and dollars of non-ferrous metals sold is due to the inclusion of
non-ferrous sales of Superior Forge and Aerospace, which were acquired
subsequent to June 30, 1997. Superior Forge and Aerospace are primarily engaged
in the sale of non-ferrous and related metals.

Brokerage ferrous sales represented 15.0% of consolidated net sales for the
three months ended June 30, 1998 compared to 11.1% of consolidated net sales for
the three months ended June 30, 1997. The increase in

15
<PAGE> 18

brokerage ferrous sales is due to the inclusion of a full quarter's ferrous
brokerage sales of the Isaac Group which was acquired at the end of the first
quarter of fiscal 1998 and the acquisition of Cozzi.

Brokerage non-ferrous sales represented 2.6% of consolidated net sales for
the three months ended June 30, 1998 compared to 10.3% of consolidated net sales
for the three months ended June 30, 1997. The Company's brokerage non-ferrous
sales are generated primarily by Bluestone. The decrease in the brokerage of
non-ferrous metals sold was due to a weakening in non-ferrous metals markets
during the three months ended June 30, 1998 versus the three months ended June
30, 1997.

Consolidated gross profit was $19.7 million (9.2% of consolidated net
sales) for the three months ended June 30, 1998 compared with consolidated gross
profit of $7.4 million (9.0% of consolidated net sales) for the three months
ended June 30, 1997. The price of scrap metal is affected by regional and
seasonal variations. Furthermore, prices for scrap metal are also impacted by
broad and global cyclical movements and as such equilibrates supply and demand.

Consolidated general and administrative expenses were $11.5 million (5.4%
of consolidated net sales) for the three months ended June 30, 1998 compared
with $4.2 million (5.1% of consolidated net sales) for the three months ended
June 30, 1997. The increase in general and administrative expenses primarily
reflects the inclusion of a full quarter of administrative expenses for those
operations acquired during the three months ended June 30, 1997 and the
inclusion of administrative expenses for those operations acquired subsequent to
June 30, 1997. Corporate overhead has also increased due to additions in
corporate staff and corporate expenses (i.e. legal, audit, travel, etc.) to
support the acquisition strategy the Company is pursuing.

Depreciation and amortization expense was $4.4 million (2.0% of
consolidated net sales) for the three months ended June 30, 1998 compared with
$1.3 million (1.6% of consolidated net sales) for the three months ended June
30, 1997. The increase is attributed to the inclusion of goodwill amortization
and depreciation of fixed assets of those operations acquired by the Company
subsequent to June 30, 1997.

During the three months ended June 30, 1998, the Company recorded merger
expenses of $0.9 million related to the Company's merger with Bluestone. Merger
expenses consist primarily of professional fees and expenses for accountants,
attorneys, and investment bankers as well as other related charges.

Interest expense was $4.9 million (2.3% of consolidated net sales) for the
three months ended June 30, 1998, versus $1.5 million (1.9% of consolidated net
sales) for the three months ended June 30, 1997. The increase is primarily due
to the issuance of the Senior Subordinated Notes and additional borrowings made
by the Company from the Senior Credit Facility to fund acquisitions.

Net loss from continuing operations, after preferred stock dividends, was
$1.6 million ($0.05 per share) for the three months ended June 30, 1998 compared
to a net income of $0.3 million ($0.02 per share) for the three months ended
June 30, 1997. The net loss from continuing operations is primarily attributable
to the recognition of merger expenses of $0.9 ($0.8 million net of income taxes)
million and declining prices for scrap metals during the three months ended June
30, 1998 as compared to the three months ended June 30, 1997. Net loss from
continuing operations excluding the merger expenses was $0.8 million ($.02 per
share) for the three months ended June 30, 1998.

Income tax benefit for the quarter ended June 30, 1998 was $0.5 million,
which yields an effective tax rate of 29.8%. The effective tax rate differs from
the statutory rate primarily due to the permanent differences represented by
non-deductible goodwill amortization and other non-deductible merger expenses.

During the three months ended June 30, 1998, the Company recognized an
extraordinary charge of $0.9 million, net of taxes, related to the early
retirement of debt and other costs incurred in connection with the closing of
the Senior Credit Facility. See Note 4 of the consolidated condensed financial
statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of cash are its existing cash and cash
equivalents balances, collection of accounts receivable and proceeds from the
Company's Senior Credit Facility. At June 30, 1998, the Company

16
<PAGE> 19

had $12.2 million in cash and cash equivalents, compared with cash and cash
equivalents of $4.5 million at March 31, 1998. As of July 31, 1998, the Company
had undrawn availability of $30.1 million under the Senior Credit Facility.

Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997

Cash Flows from Continuing Operations. The Company utilized $0.3 million of
cash in continuing operations during the three months ended June 30, 1998 versus
$6.3 million of cash which was utilized by continuing operations during the
three months ended June 30, 1997. Cash outflows from working capital during the
three months ended June 30, 1998 was $4.9 million less than during the three
months ended June 30, 1997.

Cash Flows from Investing Activities. During the three months ended June
30, 1998, the Company purchased $4.8 million of property and equipment and
utilized cash of $9.8 million to buyout operating leases. The Company also used
cash of $17.5 million for the acquisitions of and transaction costs related to
acquisitions completed during the three months ended June 30, 1998. During the
three months ended June 30, 1997, the Company purchased $1.0 million of property
and equipment and utilized cash of $6.3 million for acquisitions. The increase
in cash used for investing activities during the quarter is a result of
acquisitions completed during the quarter. Management anticipates the Company
will continue to make acquisitions, make capital expenditures for new equipment,
and upgrade and expand existing equipment and facilities. The Company expects
that these expenditures may increase in the future due to the internal growth of
the Company and business combinations.

Cash Flows from Financing Activities. During the three months ended June
30, 1998, the Company borrowed under its Senior Credit Facility to refinance
substantially all existing secured debt. The Company also issued $180.0 million
of Notes and received net proceeds of approximately $174.4 million. The Company
anticipates growing through acquisitions and will require additional debt and
equity to fund future acquisitions.

FINANCIAL CONDITION

Significant Transactions

During the three months ended June 30, 1998, the Company completed certain
significant debt transactions. The Company entered into a $250 million Senior
Credit Facility, which refinanced substantially all of the Company's existing
indebtedness. On May 13, 1998, the Company sold, in a Rule 144A private offering
and pursuant to Regulation S under the Securities Act of 1933, as amended, $180
million of Senior Subordinated Notes. The Notes mature on May 15, 2008 and bear
interest at the rate of 10% per annum. The proceeds of the Notes were used, in
part, to repay indebtedness of the Company, with the remainder used for
acquisitions, working capital and general corporate purposes.

During the three months ended June 30, 1998, the Company utilized cash of
$17.8 million in connection with acquisitions completed during the quarter.
Subsequent to June 30, 1998, the Company utilized its Senior Credit Facility to
fund the cash component of approximately $165.0 million related to the
acquisitions completed subsequent to June 30, 1998.

Cash Requirements for Maturing Debt Obligations

In connection with the acquisition of the Isaac Group, the Company issued
and assumed notes payable. Such notes require quarterly interest payments and
require principal payments of $10.8 million on February 15, 1999 and $10.8
million on February 15, 2000.

Working Capital Availability and Requirements

Accounts receivable balances decreased from $122.4 million at March 31,
1998 to $117.2 million at June 30, 1998, due to activities undertaken to
accelerate collection of customer balances. Accounts payable decreased from
$66.8 million at March 31, 1998 to $63.2 million at June 30, 1998.

17
<PAGE> 20

Inventory levels can vary significantly among the Company's subsidiaries.
Inventory on hand at June 30, 1998 and March 31, 1998, respectively, consisted
of the following categories and amounts (in thousands):

<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Ferrous metals.................................... $39,686 $35,934
Non-ferrous metals................................ 24,453 25,222
Other............................................. 1,929 786
------- -------
$66,068 $61,942
======= =======
</TABLE>

Property and equipment increased from $109.9 million at March 31, 1998 to
$136.4 million at June 30, 1998. During the quarter ended June 30, 1998, the
Company made capital expenditures of $4.8 million, bought-out certain operating
leases for $9.8 million, and acquired $15.4 million of property and equipment in
connection with the acquisitions completed during the quarter. The Company
expects to make substantial investments in additional equipment and property for
expansion, for replacement of assets, and in connection with future
acquisitions.

At June 30, 1998, the Company had outstanding borrowings under its Senior
Credit Facility of approximately $0.1 million. Borrowings on the Senior Credit
Facility bore interest at an rate of 9.0% during the quarter. Amounts
outstanding under the Senior Credit Facility ranged from $0.0 to $121.7 million
during the quarter.

YEAR 2000 LIABILITY

The Company is in the process of reviewing its existing computer software
systems, and in connection with that process is analyzing whether or not the
Company faces a "Year 2000" problem, a problem that is expected to arise with
respect to computer programs that use only two digits to identify a year in the
date field, and which were designed and developed without considering the impact
of the upcoming change in the century. Although the Company has not yet made a
final determination as to whether the various computer systems at its operations
will give rise to a "Year 2000" problem, the Company believes that any such
problem, if it arises in the future, should not be material to the Company's
operations.

18
<PAGE> 21

PART II -- OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The City of Chicago served Cozzi Iron & Metal with a lawsuit on July 24,
1998, which alleges violations of various municipal code provisions and the
common law of public nuisance relating to facility operations and waste
handling. (City of Chicago v. Cozzi Iron & Metal, Inc., 98 CH 9810). The Company
intends to begin negotiating promptly with the City to reach an appropriate and
amicable resolution. At this time, the Company cannot estimate the costs, if
any, which may result for this lawsuit, but at this stage the Company does not
believe that any such costs would have a material adverse effect on the Company.

ITEM 2: CHANGES IN SECURITIES

The following discusses all unregistered sales of the Company's Common
Stock during the three months ended June 30, 1998. Each of the private
placements described below was made to a limited number of investors, including
accredited investors, in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act.

On April 28, 1998, the Company issued 45,454 shares of Common Stock to
Katrick, Inc. as partial consideration for the acquisition of assets of 138
Scrap and Katrick, Inc. The shares were valued at $0.5 million for financial
reporting purposes. The Company also issued warrants to purchase an aggregate of
50,000 shares of Common Stock at $12.88 per share in consideration for services
rendered or to be rendered.

On May 29, 1998, the Company issued 1,034,826 shares of Common Stock to the
former shareholders of Bluestone in exchange for all the outstanding stock of
Bluestone. The Company's merger with Bluestone is accounted for as a
pooling-of-interests.

On June 4, 1998, the Company sold 18,294 shares of Common Stock to certain
individuals for an aggregate consideration of approximately $0.2 million.

On June 23, 1998, the Company issued 857,180 shares of Common Stock and
warrants to purchase 150,000 shares of Common Stock at $10.50 per share to the
former shareholder of Newell in partial consideration for all the outstanding
stock of Newell. The Common Stock and warrants issued were valued at
approximately $8.7 million for financial reporting purposes.

ITEM 5: OTHER INFORMATION

Effective July 1, 1998, Donald F. Moorehead resigned as a director of the
Company. Effective July 31, 1998, Christopher G. Knowles resigned as a director
of the Company and Kenneth Merlau joined the board of directors of the Company.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

See Exhibit Index

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter ended
June 30, 1998:

(1) Form 8-K dated March 31, 1998, filed April 15, 1998 (describing
the Company's Senior Credit Facility).

(2) Form 8-K dated May 1, 1998, filed May 1, 1998 (relating to the
acquisition of Aerospace Metals, Inc. and its consolidated subsidiaries
and including historical and pro forma financial statements).

(3) Form 8-K dated May 1, 1998, filed May 1, 1998 (describing
certain risk factors related to an investment in the Company's
securities).

(4) Form 8-K dated May 13, 1998, filed May 22, 1998 (describing the
Company's issuance of $180 million of Senior Subordinated Notes).

19
<PAGE> 22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

METAL MANAGEMENT, INC.

By: /s/ GERARD M. JACOBS

------------------------------------
Gerard M. Jacobs
Director and
Chief Executive Officer

By: /s/ T. BENJAMIN JENNINGS

------------------------------------
T. Benjamin Jennings
Director, Chairman of the Board
and Chief Development Officer

By: /s/ ROBERT C. LARRY

------------------------------------
Robert C. Larry
Vice President of Finance,
Treasurer,
Chief Financial Officer and
Assistant Secretary

Date: August 14, 1998

20
<PAGE> 23

METAL MANAGEMENT, INC.

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C>
2.1 Stock Purchase Agreement, dated as of May 24, 1998, by and
among the Company, Joseph F. Naporano and Andrew J.
Naporano, Jr. (incorporated by reference to Exhibit 2.1 of
the Company's report on Form 8-K dated July 1, 1998).
3.1 Certificate of Incorporation of the Company, as amended
through June 23, 1998 (incorporated by reference to Exhibit
3.1 of the Company's Annual Report on Form 10-K for the year
ended March 31, 1998).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998).
4.1 Registration Rights Agreement, dated as of June 23, 1997, by
and between the Company and the George A. Isaac, III Second
Revocable Trust (incorporated by reference to Exhibit 4.4 of
the Company's Annual Report on Form 10-K for the year ended
March 31, 1998).
4.2 Registration Rights Agreement, dated as of November 20,
1997, by and among the Company, Proprietary Convertible
Investment Group, Inc., and Capital Ventures International
(incorporated by reference to Exhibit 10.5 of the Company's
report on Form 8-K dated December 1, 1997).
4.3 Shelf Registration Rights Agreement, dated December 19,
1997, between the Company and Samstock, L.L.C. (incorporated
by reference to Exhibit 4.2 of the Company's report on Form
8-K dated December 18, 1997).
4.4 Amended and Restated Registration Rights Agreement, dated
December 19, 1997, among the Company, T. Benjamin Jennings,
Gerard M. Jacobs, Albert A. Cozzi, Frank J. Cozzi, Gregory
P. Cozzi and Samstock, L.L.C. (incorporated by reference to
Exhibit 4.3 of the Company's report on Form 8-K dated
December 18, 1997).
4.5 Registration Rights Agreement, dated December 18, 1997,
between the Registrant and Ronald I. Romano, Lolita A.
Romano, Ronald T. Romano and Ryan E. Romano (incorporated by
reference to Exhibit 4.4 of the Company's report on Form 8-K
dated January 2, 1998).
4.6 Registration Rights Agreement, dated January 20, 1998, by
and between the Company and Aerospace Metals, Inc.
(incorporated by reference to Exhibit 10.3 of the Company's
report on Form 8-K dated January 20, 1998).
4.7 Registration Rights Agreement, dated January 30, 1998, by
and between the Company and Newell Phoenix, L.L.C.
(incorporated by reference to Exhibit 4.5 of the Company's
registration statement on Form S-3 dated February 10, 1998).
4.8 Indenture, dated as of May 13, 1998, among the Company, the
Guarantors (as defined therein) and LaSalle National Bank,
as Trustee (incorporated by reference to Exhibit 10.2 of the
Company's report on Form 8-K dated May 13, 1998).
4.9 First Supplemental Indenture, dated as of May 31, 1998,
executed by R&P Holdings, Inc., Charles Bluestone Company
and R&P Real Estate, Inc., amending Indenture, dated as of
May 13, 1998, among the Company, the Guarantors and LaSalle
National Bank, as Trustee (incorporated by reference to
Exhibit 4.12 of the Company's Annual Report on Form 10-K for
the year ended March 31, 1998).
4.10 Second Supplemental Indenture, dated as of June 19, 1998,
executed by Metal Management Gulf Coast, Inc., amending
Indenture, dated as of May 13, 1998, among the Company, the
Guarantors and LaSalle National Bank, as Trustee
(incorporated by reference to Exhibit 4.13 of the Company's
Annual Report on Form 10-K for the year ended March 31,
1998).
</TABLE>

<PAGE> 1

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
<S> <C>
4.11 Third Supplemental Indenture, dated as of June 24, 1998,
executed by Newell Recycling West, Inc., amending Indenture,
dated as of May 13, 1998, among the Company, the Guarantors
and LaSalle National Bank, as Trustee (incorporated by
reference to Exhibit 4.14 of the Company's registration
statement on Form S-4 filed July 10, 1998).
4.12 Fourth Supplemental Indenture, dated as of July 1, 1998,
executed by Naporano Iron & Metal Co. and NIMCO Shredding
Co., amending Indenture, dated as of May 13, 1998, among the
Company, the Guarantors and LaSalle National Bank, as
Trustee (incorporated by reference to Exhibit 4.15 of the
Company's registration statement on Form S-4 filed July 10,
1998).
4.13 Fifth Supplemental Indenture, dated as of July 1, 1998,
executed by Michael Schiavone & Sons, Inc. and Torrington
Scrap Company, amending Indenture, dated as of May 13, 1998,
among the Company, the Guarantors and LaSalle National Bank,
as Trustee (incorporated by reference to Exhibit 4.16 of the
Company's registration statement on Form S-4 filed July 10,
1998).
4.14 Exchange and Registration Rights Agreement, dated as of May
13, 1998, by and among the Company, the Guarantors, Goldman,
Sachs & Co., BT Alex. Brown Incorporated and Salomon
Brothers Inc (incorporated by reference to Exhibit 10.3 of
the Company's report on Form 8-K dated May 13, 1998).
4.15 Registration Rights Agreement, dated as of July 1, 1998, by
and among the Company, McDonald & Company Securities, Joseph
F. Naporano and Andrew J. Naporano, Jr. (incorporated by
reference to Exhibit 10.1 of the Company's report on Form
8-K dated July 1, 1998).
4.16 Declaration of Registration Rights, dated March 17, 1998, by
the Company for the benefit of Ian Albert, Betty Albert,
Eric Albert, Brian Albert, Lisa Albert and Alan Shumway
(incorporated by reference to Exhibit 4.15 of the Company's
registration statement on Form S-3 filed July 7, 1998).
4.17 Registration Rights Agreement, dated April 29, 1998, by and
between the Company and 138 Scrap, Inc. and Katrick, Inc.
(incorporated by reference to Exhibit 4.16 of the Company's
registration statement on Form S-3 filed July 7, 1998).
4.18 Registration Rights Agreement, dated June 24, 1998, by and
between the Company and G. Robert Triesch, III (incorporated
by reference to Exhibit 4.17 of the Company's registration
statement on Form S-3 filed July 7, 1998).
10.1 Credit Agreement, dated March 31, 1998, by and among the
Company and its subsidiaries named therein and BT Commercial
Corporation (incorporated by reference to Exhibit 10.1 of
the Company's report on Form 8-K dated March 31, 1998).
10.2 Amendment No. 1 to Credit Agreement, dated as of June 12,
1998, by and among the Company and its subsidiaries named
therein and BT Commercial Corporation (incorporated by
reference to Exhibit 10.28 of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998).
10.3 Amendment No. 2 to Credit Agreement, dated as of June 19,
1998, by and among the Company and its subsidiaries named
therein and BT Commercial Corporation (incorporated by
reference to Exhibit 10.29 of the Company's Annual Report on
Form 10-K for the year ended March 31, 1998).
10.4 Purchase Agreement, dated May 8, 1998, among the Company,
the Guarantors, Goldman, Sachs & Co., BT Alex. Brown
Incorporated and Salomon Brothers Inc (incorporated by
reference to Exhibit 10.1 of the Company's report on Form
8-K dated May 13, 1998).
11.1 Computation of net income (loss) per share.
27.1 Financial Data Schedule.
</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,244,000
<SECURITIES> 0
<RECEIVABLES> 118,697,000
<ALLOWANCES> 1,459,000
<INVENTORY> 66,068,000
<CURRENT-ASSETS> 203,996,000
<PP&E> 152,551,000
<DEPRECIATION> 16,101,000
<TOTAL-ASSETS> 559,911,000
<CURRENT-LIABILITIES> 91,795,000
<BONDS> 180,000,000
0
30,900,000
<COMMON> 353,000
<OTHER-SE> 228,464,000
<TOTAL-LIABILITY-AND-EQUITY> 559,911,000
<SALES> 0
<TOTAL-REVENUES> 214,951,000
<CGS> 195,202,000
<TOTAL-COSTS> 195,202,000
<OTHER-EXPENSES> 16,866,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,933,000
<INCOME-PRETAX> (1,641,000)
<INCOME-TAX> (489,000)
<INCOME-CONTINUING> (1,152,000)
<DISCONTINUED> 47,000
<EXTRAORDINARY> (862,000)
<CHANGES> 0
<NET-INCOME> (2,408,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)

</TABLE>