e10vq

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, 2007

o		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 0-14836

METAL MANAGEMENT, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		94-2835068
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


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

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

As of January 28, 2008, the registrant had 26,141,746 shares of common stock outstanding.

PART I: FINANCIAL INFORMATION


Item 1.	Financial Statements

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

(unaudited)


	Three Months Ended						Nine Months Ended
	December 31,			December 31,			December 31,			December 31,
	2007			2006			2007			2006

Net sales	$	582,096		$	523,965		$	1,951,304		$	1,604,585

Operating expenses:

Cost of sales (excluding depreciation)		534,471			471,702			1,761,396			1,401,886
General and administrative		25,597			21,913			79,067			65,560
Depreciation and amortization		10,071			7,131			27,802			21,322
Merger expenses		747			0			3,335			0
Severance and other charges		0			490			701			932

Operating income		11,210			22,729			79,003			114,885
Income from joint ventures		453			357			2,112			2,771
Interest expense		(1,321	)		(373	)		(4,280	)		(979	)
Interest and other income, net		75			969			334			1,913
Gain on sale of joint venture interest		0			0			0			26,362

Income before income taxes		10,417			23,682			77,169			144,952
Provision for income taxes		4,272			8,103			30,522			55,411

Net income	$	6,145		$	15,579		$	46,647		$	89,541

Earnings per share:
Basic	$	0.24		$	0.61		$	1.85		$	3.48

Diluted	$	0.24		$	0.60		$	1.82		$	3.40

Cash dividends declared per share	$	0.075		$	0.075		$	0.225		$	0.225

Weighted average common shares outstanding:
Basic		25,252			25,532			25,216			25,733

Diluted		25,718			26,095			25,645			26,357

See accompanying notes to consolidated financial statements

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

(unaudited)


	December 31,			March 31,
	2007			2007

ASSETS
Current assets:
Cash and cash equivalents	$	12,604		$	9,354
Accounts receivable, net		212,798			227,397
Inventories		201,230			191,301
Deferred income taxes		5,254			5,544
Prepaid expenses and other assets		18,981			12,132

Total current assets		450,867			445,728
Property and equipment, net		221,099			187,124
Goodwill		27,295			14,766
Intangible assets, net		26,561			13,267
Deferred income taxes, net		10,912			10,437
Investments in joint ventures		23,181			20,760
Other assets		2,926			3,441

Total assets	$	762,841		$	695,523


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	548		$	46
Accounts payable		138,990			177,747
Income taxes payable		2,095			12,271
Other accrued liabilities		34,945			35,482

Total current liabilities		176,578			225,546
Long-term debt, less current portion		60,446			160
Other liabilities		10,052			4,987

Total long-term liabilities		70,498			5,147
Stockholders’ equity:
Preferred stock		0			0
Common stock		276			271
Additional paid-in capital		212,355			201,577
Accumulated other comprehensive loss		(1,931	)		(2,008	)
Retained earnings		356,320			315,517
Treasury stock, at cost		(51,255	)		(50,527	)

Total stockholders’ equity		515,765			464,830

Total liabilities and stockholders’ equity	$	762,841		$	695,523

See accompanying notes to consolidated financial statements

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

(unaudited)


	Nine months ended
	December 31,			December 31,
	2007			2006

Cash flows from operating activities:
Net income	$	46,647		$	89,541
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		27,802			21,322

Deferred income taxes		202			1,327
Income from joint ventures		(2,112	)		(2,771	)
Gain on sale of joint venture interest		0			(26,362	)
Distribution of earnings from joint ventures		114			8,748
Stock-based compensation expense		6,962			4,978
Excess tax benefits from stock-based awards		(1,138	)		(759	)
Other		106			949
Changes in assets and liabilities, net of acquisitions:
Accounts receivable		30,197			26,594
Inventories		(2,585	)		(78,025	)
Other assets		(6,464	)		(3,293	)
Accounts payable		(43,676	)		33,899
Income taxes payable		(4,331	)		7,229
Other liabilities		(2,772	)		(2,781	)

Net cash provided by operating activities		48,952			80,596

Cash flows from investing activities:

Purchases of property and equipment		(44,460	)		(48,073	)
Proceeds from sale of property and equipment		744			1,658
Acquisitions, net of cash acquired		(54,933	)		(28,591	)
Purchases of short-term investments		0			(99,600	)
Proceeds from sale of short-term investments		0			109,155
Proceeds from sale of joint venture interest		0			46,005
Other		(548	)		(1,200	)

Net cash used in investing activities		(99,197	)		(20,646	)

Cash flows from financing activities:
Issuances of long-term debt		531,898			10,373
Repayments of long-term debt		(475,332	)		(13,361	)
Issuance of common stock		2,363			11,776
Repurchase of common stock		(728	)		(20,831	)
Excess tax benefits from stock-based awards		1,138			759
Cash dividends paid to stockholders		(5,844	)		(5,965	)
Fees paid to issue long-term debt		0			(608	)

Net cash provided by (used in) financing activities		53,495			(17,857	)


Net increase in cash and cash equivalents		3,250			42,093
Cash and cash equivalents at beginning of period		9,354			37,717

Cash and cash equivalents at end of period	$	12,604		$	79,810


Supplemental disclosures of cash flow information:
Cash interest paid	$	3,789		$	646

Cash income taxes paid, net of refunds	$	40,194		$	46,855

See accompanying notes to consolidated financial statements

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

(unaudited)


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

Balance at March 31, 2007		27,129	$	271		(1,516	)	$	(50,527	)	$	201,577		$	(2,008	)	$	315,517		$	464,830
Net income		0		0		0			0			0			0			46,647			46,647
Amortization of pension costs, net of tax		0		0		0			0			0			77			0			77

Total comprehensive income																					46,724
Exercise of stock options and warrants		89		1		0			0			1,894			0			0			1,895
Issuance of restricted stock, net of cancellations		409		4		0			0			(4	)		0			0			0
Issuance of stock under employee stock purchase plan		13		0		0			0			468			0			0			468
Tax benefit related to equity compensation		0		0		0			0			1,431			0			0			1,431
Stock-based compensation expense		0		0		0			0			6,962			0			0			6,962
Repurchase of common stock		0		0		(15	)		(728	)		0			0			0			(728	)
Cash dividends paid to stockholders		0		0		0			0			0			0			(5,844	)		(5,844	)
Other		0		0		0			0			27			0			0			27

Balance at December 31, 2007		27,640	$	276		(1,531	)	$	(51,255	)	$	212,355		$	(1,931	)	$	356,320		$	515,765

See accompanying notes to consolidated financial statements

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


NOTE 1 –	Accounting Policies

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 17 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, 2007.

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 tolling, stevedoring and dismantling are insignificant to the Company.

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

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

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


	Three Months Ended				Nine Months Ended
	December 31,		December 31,		December 31,		December 31,
	2007		2006		2007		2006

Ferrous metals	$	395,759	$	300,432	$	1,288,605	$	946,543
Non-ferrous metals		163,065		182,680		548,016		558,704
Brokerage – ferrous		17,617		35,116		97,201		78,020
Brokerage – non-ferrous		1,664		1,391		4,462		6,865
Other		3,991		4,346		13,020		14,453

Net sales	$	582,096	$	523,965	$	1,951,304	$	1,604,585

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“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 expect the adoption of SFAS No. 157 to have a material effect on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities – Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure certain financial assets and liabilities at fair value. Unrealized gains and losses, arising subsequent to adoption, are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material effect on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies and requires the expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for the Company beginning April 1, 2009 and will apply prospectively to business combinations completed on or after that date.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51,” which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for the Company beginning April 1, 2009 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. The Company is currently evaluating the potential impact of adopting SFAS No. 160 on its consolidated financial statements.


NOTE 2 –	Merger Transaction

On September 24, 2007, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Sims Group Limited, a corporation organized under the laws of Victoria, Australia (“Sims”). Under the terms of the Merger Agreement, each outstanding share of the Company’s common stock will be converted into the right to receive 2.05 American Depositary Shares of Sims (“Sims ADSs”), with each Sims

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

ADS representing one ordinary share of Sims. All outstanding options to purchase shares of the Company’s common stock will be converted into options to purchase shares of Sims ADS, as adjusted for the exchange ratio. Under certain circumstances, if the Merger Agreement is terminated, the Company or Sims may be required to pay the other party a termination fee of $25.0 million.

The consummation of the merger is subject to a number of customary closing conditions including, but not limited to, approval by the Company’s shareholders. Pending all requisite approvals, the parties expect to close the merger by March 31, 2008 but no assurance can be provided with respect to the timing or consummation of the merger with Sims. On October 30, 2007, the Company received notification from the Federal Trade Commission that it had granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 17, 2008, the Company and Sims filed with the SEC a joint preliminary proxy statement/prospectus as part of an amended registration statement on Form F-4 regarding the proposed merger. Once finalized, a definitive proxy statement will be sent to the Company’s stockholders seeking approval relating to the merger. The proxy statement contains information about the proposed merger and related matters to be voted at the special meeting.

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

In the three and nine months ended December 31, 2007, the Company incurred merger expenses of approximately $0.7 million and $3.3 million, respectively, consisting primarily of legal, accounting and investment banking fees.


NOTE 3 –	Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur from the assumed exercise of stock options, assumed vesting of restricted stock, and assumed issuance of common stock under the employee stock purchase plan using the treasury stock method.

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

The computation of basic and diluted earnings per share is as follows (in thousands, except for per share amounts):


	Three months ended				Nine months ended
	December 31,		December 31,		December 31,		December 31,
	2007		2006		2007		2006

Numerator:
Net income	$	6,145	$	15,579	$	46,647	$	89,541

Denominator:
Weighted average common shares outstanding, basic		25,252		25,532		25,216		25,733
Incremental common shares attributable to dilutive stock options and warrants		177		170		173		286
Incremental common shares attributable to unvested restricted stock		289		393		256		338

Weighted average common shares outstanding, diluted		25,718		26,095		25,645		26,357

Basic income per share	$	0.24	$	0.61	$	1.85	$	3.48

Diluted income per share	$	0.24	$	0.60	$	1.82	$	3.40

In the three months ended December 31, 2007, there were no stock options excluded from the diluted earnings per share calculation. In the nine months ended December 31, 2007, the assumed conversion of 0.1 million stock options were excluded from the diluted earnings per share calculation. In both the three and nine months ended December 31, 2006, the assumed conversion of 0.2 million stock options were excluded from the diluted earnings per share calculation. These stock options were excluded from the diluted earnings per share calculation as their inclusion would have been anti-dilutive.


NOTE 4 –	Balance Sheet Information

Inventories

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


	December 31,		March 31,
	2007		2007

Ferrous metals	$	105,157	$	108,553
Non-ferrous metals		95,848		82,538
Other		225		210

	$	201,230	$	191,301

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

Property and Equipment

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


	December 31,			March 31,
	2007			2007

Land and improvements	$	64,459		$	52,646
Buildings and improvements		36,819			29,679
Operating machinery and equipment		201,112			151,296
Automobiles and trucks		19,777			15,720
Furniture, office equipment and software		7,643			6,408
Construction in progress		10,118			27,154

		339,928			282,903
Less – accumulated depreciation		(118,829	)		(95,779	)

	$	221,099		$	187,124

Other Accrued Liabilities

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


	December 31,		March 31,
	2007		2007

Accrued employee compensation and benefits	$	20,283	$	25,771
Accrued insurance		6,868		5,186
Other		7,794		4,525

	$	34,945	$	35,482

Accrued Severance and Other Charges

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

In the three months ended June 30, 2006, the Company recognized severance and other charges of approximately $0.4 million related to the termination of a former Executive Vice President. The severance and other charges consisted of cash severance of $263.2 thousand 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, the Company recognized severance and other charges of approximately $0.5 million related to a settlement of outstanding claims between the Company and former officers and directors.


NOTE 5 –	Acquisitions

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

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

On July 31, 2007, the Company acquired substantially all the assets of Universal Recycling, Inc. (“Universal”) a scrap metal recycler located in northern Indiana. The total purchase price was approximately $12.8 million, which consisted of $12.1 million in cash paid at closing, $0.1 million in transaction costs and a $0.6 million working capital adjustment which was paid in February 2008.

Based on valuations of the tangible and intangible assets associated with the Universal acquisition, the Company allocated the purchase consideration as follows (in thousands):


Accounts receivable	$	2,860
Inventories		865
Property and equipment		5,531
Amortizable intangible assets		2,122
Goodwill		1,535
Accounts payable and accrued liabilities		(118	)

	$	12,795

On May 21, 2007, the Company acquired substantially all the assets of Mars Industries, Inc. (“Mars”) located in Detroit, Michigan. The purchase price was approximately $43.1 million, which consisted of $42.8 million in cash and $0.3 million in transaction costs.

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


Accounts receivable	$	12,740
Inventories		6,479
Property and equipment		9,442
Other assets		317
Amortizable intangible assets		13,706
Goodwill		10,822
Accounts payable and accrued liabilities		(6,668	)
Long-term debt		(4,212	)

	$	42,626

The Company financed the Universal and Mars acquisitions from borrowings under its credit agreement. The amortizable intangible assets for the Universal and Mars acquisitions consists of customer relationships and non-compete agreements that are being amortized over a period of ten years and five years, respectively. All of the goodwill in connection with both acquisitions will be deductible for tax purposes.


NOTE 6 –	Goodwill and Intangible Assets

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


Balance at March 31, 2007	$	14,766
Purchase accounting adjustments		172
Acquisitions (see Note 5)		12,357

Balance at December 31, 2007	$	27,295

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

Intangible assets, excluding goodwill, consist of the following (in thousands):


	December 31, 2007					March 31, 2007
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization

Customer relationships	$	23,699	$	(2,716	)	$	10,350	$	(804	)
Non-compete agreements		7,438		(1,860	)		4,824		(1,103	)

	$	31,137	$	(4,576	)	$	15,174	$	(1,907	)

Amortization expense for intangible assets in the three and nine months ended December 31, 2007 was $1.0 million and $2.7 million, respectively. Amortization expense for intangible assets in the three and nine months ended December 31, 2006 was $0.7 million and $1.8 million, respectively. As of December 31, 2007, estimated future intangible asset amortization expense is as follows (in thousands):


Remainder of fiscal 2008	$	979
Fiscal 2009		3,743
Fiscal 2010		3,592
Fiscal 2011		3,460
Fiscal 2012		2,865
Thereafter		11,922


NOTE 7 –	Long-term Debt

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


	December 31,			March 31,
	2007			2007

Credit Agreement	$	59,573		$	0
Other debt (including capital leases) due 2008 to 2010		1,421			206

		60,994			206
Less – current portion of long-term debt		(548	)		(46	)

	$	60,446		$	160

Credit Agreement

The Company has a $300 million secured revolving credit and letter of credit facility, with a maturity date of May 1, 2011 (the “Credit Agreement). Pursuant to the Credit Agreement, the Company pays a fee on the undrawn portion of the facility that is determined by the leverage ratio. 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 $85 million for the year ending March 31, 2008 and $65 million in each of the following three fiscal years after March 31, 2008.

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.

Other Debt

In connection with the acquisition of Mars, the Company assumed long-term debt of $4.2 million that consisted of a line-of-credit balance of $2.3 million and capital lease obligations of $1.9 million. Subsequent to closing of the Mars acquisition, the Company repaid the line-of-credit in full and $0.7 million of capital leases.

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


NOTE 8 –	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 its 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,
	2007			2006			2007			2006

Service cost	$	43		$	44		$	128		$	131
Interest cost		186			176			563			529
Expected return on plan assets		(208	)		(184	)		(626	)		(552	)
Amortization of prior service cost		3			2			7			7
Amortization of net actuarial loss		39			47			116			141

Net periodic benefit cost	$	63		$	85		$	188		$	256

In the nine months ended December 31, 2007, the Company made cash contributions of $0.8 million to its pension plans. The Company does not expect to make any additional cash funding contributions to its pension plans through March 31, 2008.

Multi-Employer 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 $0.2 million and $0.5 million in the three and nine months ended December 31, 2007, respectively, and $0.1 million and $0.4 million in the three and nine months ended December 31, 2006, respectively.

Non-Qualified Deferred Compensation Plan

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

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

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


NOTE 9 –	Income Taxes

On April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

accounting for uncertainty in income tax positions. This interpretation requires the Company to recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. The adoption of FIN 48 did not result in an adjustment to the Company’s tax liability for uncertain tax positions.

The amount of gross unrecognized tax benefits (including interest and penalties) at April 1, 2007 was $8.4 million, all of which if recognized would impact the effective tax rate. At December 31, 2007, the amount of gross unrecognized tax benefits was $5.3 million. The $3.1 million reduction primarily represents state tax settlements of $3.6 million, offset by $0.5 million of additional unrecognized tax benefits recorded in the nine months ended December 31, 2007. The Company believes that it is reasonably possible that unrecognized tax benefits will decrease by approximately $0.1 million over the next 12 months as a result of payments that may be made to settle certain state income tax matters.

As of April 1, 2007, interest and penalties accrued for uncertain tax positions was $0.8 million. The change in the accrual for interest and penalties in the nine months ended December 31, 2007 was not material. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.

The Company is subject to taxation in the U.S. and various state and local jurisdictions. The Company was audited by the Internal Revenue Service (“IRS”) for its 2004 tax year. The IRS audit was closed without any adjustment. The U.S. federal tax returns for the tax years 2005 through 2007 are subject to examination. The state of Illinois is currently conducting an income tax audit for the 2005 and 2006 tax years. For the Company’s other major state and local jurisdictions, tax years 2003 through 2007 are subject to examination.


NOTE 10 –	Commitments and Contingencies

Legal Proceedings

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

In a related matter, on June 7, 2007, the Company filed a notice of motion for summary judgment in lieu of a complaint (the “Notice”) against Esmark Incorporated, Sun Steel Company LLC, Century Steel Company LLC, North American Steel Company LLC, Great Western Steel Company LLC, Electric Coating Technologies Bridgeview LLC, U.S. Metals & Supply LLC, Miami Valley Steel Service, Inc., Premier Resource Group LLC, Independent Steel Company LLC, Electric Coating Technologies LLC, Esmark Realty LLC, Century Steel Realty LLC, Great Western Realty LLC, Isco Realty LLC, Miami Valley Realty LLC, Sun Steel Realty

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

LLC, U.S. Metals Realty LLC (collectively, “Esmark”) in the Supreme Court of the State of New York County of New York. The Company entered into an unconditional guaranty agreement (the “Guaranty”) with Esmark pursuant to which Esmark agreed to unconditionally, jointly and severally guarantee all money owing to the Company under the Purchase Orders with WPSC without monetary limit. Therefore, the Company filed the Notice to seek payment of approximately $31 million (reduced to approximately $21 million on September 5, 2007 to reflect interim payments) currently past due under Purchase Orders pursuant to the express terms and conditions of the Guaranty, together with interest, expenses and reasonable attorneys’ fees. On October 3, 2007, the court denied the motion for the summary judgment in lieu of complaint and, pursuant to applicable court rules, the Notice was converted into a complaint and the action against Esmark will now proceed. The Company has appealed the summary judgement decision. The Company intends to seek additional monies, together with interest, expenses and attorneys’ fees, as payments become due and owing in the ordinary course.

The Company intends to vigorously pursue its rights and remedies directly against WPSC and against Esmark from the unlimited and unrepudiated Guaranty, but there can be no assurance as to the outcome of these actions or their effect on the Company’s financial condition or results of operations. On November 27, 2007, Esmark merged with WPSC.

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.

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 a trade association called the Institute of Scrap Recycling Industries.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 currently scheduled for hearing in July 2008. 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 April 29, 1998, Metal Management Midwest, Inc. (“MM-Midwest”), a subsidiary of the Company, acquired substantially all of the operating assets of 138 Scrap, Inc. (“138 Scrap”) that were used in its scrap metal recycling business. Most of these assets were located at a recycling facility in Riverdale, Illinois (the “Facility”). On March 12, 2007, the Village of Riverdale filed suit against numerous third parties, including MM-Midwest, in the United States District Court – Northern District of Illinois. The suit alleges, among other things, that the release or disposal of hazardous substances within the meaning of CERCLA has occurred at an approximately 57 acre property in the Village of Riverdale (which includes the 8.8 acre Facility that was leased by MM-Midwest until December 31, 2003). At this stage, the Company cannot predict MM-Midwest’s potential liability, if any, in connection with such lawsuit or any required remediation. The Company believes that MM-Midwest has meritorious defenses to certain of the claims outlined in the suit and MM-Midwest intends to vigorously defend itself. In addition, although the Company believes that it would be entitled to indemnification from the prior owner of 138 Scrap for some or all of the obligations that may be imposed on MM-Midwest in connection with this matter under the agreement governing its purchase of the operating assets of 138 Scrap, the Company cannot provide assurances that the prior owner will have sufficient resources to fund any indemnifiable claims to which the Company may be entitled.

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

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

On June 22, 2006, Metal Management Alabama, Inc. (“MM-Alabama”), a subsidiary of the Company, received a notice from the Alabama Department of Environmental Management (“ADEM”) directing MM-Alabama to prepare a plan to remove waste from a property in Cleburne County, Alabama known as the “CAMMCO Site.” MM-Alabama has begun an investigation to determine (1) if it has any liability for the waste allegedly present on the CAMMCO Site, (2) the nature and quantity of the waste allegedly on the CAMMCO Site, (3) the identities of other potentially responsible parties, and (4) the availability of insurance or indemnity for any possible liability. At

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

this preliminary stage, the Company has not determined whether MM-Alabama has any liability with respect to the CAMMCO Site.


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. During the nine months ended December 31, 2007, the Company did not repurchase any of its common stock under the stock repurchase program. Since the inception of the stock repurchase program, the Company has purchased 1.5 million shares of its common stock at a cost of approximately $49.9 million, or at an average cost of $33.25 per share. There currently remains approximately 1.2 million shares available for repurchase under the current authorization and the Company may engage in repurchases from time to time before the special meeting of stockholders relating to the Sims merger (see Note 2). The stock repurchase program has no expiration date but may be terminated at any time by the Board of Directors.

Other Repurchases of Common Stock

In the nine months ended December 31, 2007, the Company repurchased 15,094 shares of its common stock in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123(R), “Share Based Payment.” SFAS No. 123(R) requires measurement of compensation cost for share-based awards at fair value and recognition of compensation cost over the service period, net of forfeitures. The fair value of restricted stock is determined based on the number of shares granted and the grant date fair value of the Company’s common stock. The fair value of the stock options and shares granted under the employee stock purchase plan is determined using the Black-Scholes valuation model. Stock-based compensation expense for the three months ended December 31, 2007 and 2006 amounted to $2.5 million and $1.8 million, respectively, and $7.0 million and $5.0 million for the nine months ended December 31, 2007 and 2006, respectively.

At December 31, 2007, there was $0.4 million and $17.8 million of unrecognized compensation cost related to nonvested stock options and nonvested restricted stock, respectively, which is expected to be recognized over a period of 0.25 years and 1.4 years, respectively.


NOTE 12 –	Investments in Joint Ventures

At December 31, 2007, investments in joint ventures were $23.2 million, which primarily represents the Company’s 50% ownership interest in Metal Management Nashville, LLC and 50% ownership interest in Port Albany Ventures LLC.

The Company previously had an investment of 28.5% in Southern Recycling, LLC (“Southern”). On April 28, 2006, Southern was sold to a third party for $161.4 million in cash. Based upon its ownership interest, the Company received approximately $46.0 million in cash. In the 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.

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 the ability to consummate the Sims merger or the failure to realize the anticipated benefits of the merger, future acquisitions (including the amount and nature thereof), business strategy, expansion and growth of our business and operations, general economic and market conditions and other such matters are forward-looking statements. Although we believe the expectations expressed in such forward-looking statements are based on reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause actual results to differ materially from those expressed in any forward-looking statements. These and other risks, uncertainties and other factors are discussed under “Risk Factors” appearing in our Annual Report on Form 10-K for the year ended March 31, 2007 and Item 1A. “Risk Factors” of Part II of this Report, as the same may be amended from time to time.

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

The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included under Item 1 of this Report. In addition, reference should be made to the audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K (“Annual Report”) for the year ended March 31, 2007 (“fiscal 2007”).

Overview and Industry

We are one of the largest domestic scrap metal recycling companies with 53 facilities in 17 states. We enjoy leadership positions in many markets, such as Birmingham, Chicago, Cleveland, Denver, Detroit, Hartford, Houston, Memphis, Mississippi, Newark, New Haven, Phoenix, Pittsburgh, Salt Lake City, Toledo and Tucson. Through two joint venture investments, we also have operations in Albany and Nashville. We operate in one reportable segment, the scrap metal recycling industry.

Our operations primarily involve the collection, processing and marketing of ferrous and non-ferrous scrap metals. We collect industrial scrap metal and obsolete scrap metal, process it into reusable forms and supply the recycled metals to our customers, including electric-arc furnace mills, integrated steel mills, foundries, secondary smelters and metal brokers. In addition to 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 believe that we provide one of the most comprehensive product offerings of both ferrous and non-ferrous scrap metals. Our ferrous products primarily include shredded, sheared, cold briquetted and bundled scrap metal, and other purchased scrap metal, such as turnings, cast and broken furnace iron. We also process non-ferrous scrap metals, including aluminum, copper, stainless steel and other nickel-bearing metals, brass, titanium and high-temperature alloys, using similar techniques and through application of our proprietary technologies.

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

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

Merger Agreement with Sims

On September 24, 2007, we entered into a definitive merger agreement (the “Merger Agreement”) with Sims Group Limited, a corporation organized under the laws of Victoria, Australia (“Sims”). Under the terms of the Merger Agreement, each outstanding share of our common stock will be converted into the right to receive 2.05 American Depositary Shares of Sims (“Sims ADSs”), with each Sims ADS representing one ordinary share of Sims. All outstanding options to purchase shares of our common stock will be converted into options to purchase shares of Sims ADS, as adjusted for the exchange ratio. Under certain circumstances, if the Merger Agreement is terminated, we or Sims may be required to pay the other party a termination fee of $25.0 million. The consummation of the merger is subject to a number of customary closing conditions including, but not limited to, approval by our shareholders. Pending all requisite approvals, the parties expect to close the merger by March 31, 2008 but no assurance can be provided with respect to the timing or consummation of the merger with Sims. On October 30, 2007, we received notification from the Federal Trade Commission that it had granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 17, 2008, we and Sims filed with the SEC a joint preliminary proxy statement/prospectus as part of an amended registration statement on Form F-4 regarding the proposed merger. Once finalized, a definitive proxy statement will be sent to our stockholders seeking approval relating to the merger. The proxy statement contains information about the proposed merger and related matters to be voted at the special meeting.

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

Recent Events

On July 31, 2007, we acquired substantially all of the assets of Universal Recycling, Inc. (“Universal”) for approximately $12.8 million. Universal is a scrap metal recycler located in northern Indiana. The purchase price consisted of $12.1 million in cash paid at closing, $0.1 million in transaction costs and a $0.6 million working capital adjustment which was paid in February 2008.

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

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

Results of Operations

Our operating results are highly cyclical in nature. They tend to reflect and be amplified by changes to general economic conditions, both domestically and internationally. This leads to significant fluctuations in demand and pricing for our products. Over the last three years, we have experienced strong industry conditions but also encountered extreme volatility in scrap prices.

Our operating results for the three and nine months ended December 31, 2007 reflect higher sales but lower profitability as compared to the three and nine months ended December 31, 2006. The decline in our operating results was primarily due to lower non-ferrous margins, higher processing expenses, higher general and administrative expenses and higher depreciation and amortization expenses.

Ferrous sales and margins increased in the three and nine months ended December 31, 2007 as a result of higher sales prices and increased unit shipments. However, ferrous margins on a per unit basis were lower in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006. Ferrous margins on a per unit basis were impacted by aggressive competition for the purchase of unprocessed ferrous scrap metal and high export freight rates. In addition, in the nine months ended December 31, 2007, our ferrous margins were also impacted by sequentially lower ferrous scrap prices in the three months ended June 30, 2007 and a requirement that we remarket certain of our ferrous scrap which was originally sold to WPSC (see discussion under “Recent Events” above). After achieving record results in fiscal 2007, the market for ferrous scrap metals weakened in the months of April and May 2007, causing prices for certain grades of ferrous scrap to decline by approximately $85 per ton, before stabilizing in June 2007. Ferrous scrap prices generally increased, but not significantly, from July 2007 through December 2007 which we attribute to strong export demand for ferrous scrap. Ferrous scrap prices increased significantly in January 2008 and by $90 per ton for certain grades.

Non-ferrous sales decreased in the three and nine months ended December 31, 2007 primarily due to lower sales volumes. In addition, non-ferrous sales in the three months ended December 31, 2007 decreased due to lower sales prices. Non-ferrous margins were negatively impacted by weak demand and pricing for nickel-based alloys. In the three months ended December 31, 2007, we recorded a $2.7 million lower of cost or market adjustment for certain specialty alloys as the market price declined to prices lower than our average cost. As a result, we experienced a compression in our non-ferrous margins in the three and nine months ended December 31, 2007. The following table sets forth our statement of operations and sales volume data for the three and nine months ended December 31, 2007 and 2006.

Consolidated Statements of Operations ($ in thousands):


	Three Months Ended December 31,												Nine Months Ended December 31,
	2007			%			2006			%			2007			%			2006			%

Sales by commodity:
Ferrous metals	$	395,759			68.0		$	300,432			57.3		$	1,288,605			66.0		$	946,543			59.0
Non-ferrous metals		163,065			28.0			182,680			34.9			548,016			28.1			558,704			34.8
Brokerage – ferrous		17,617			3.0			35,116			6.7			97,201			5.0			78,020			4.9
Brokerage – non-ferrous		1,664			0.3			1,391			0.3			4,462			0.2			6,865			0.4
Other		3,991			0.7			4,346			0.8			13,020			0.7			14,453			0.9

Net sales		582,096			100.0	%		523,965			100.0	%		1,951,304			100.0	%		1,604,585			100.0	%
Cost of sales (excluding depreciation)		534,471			91.8			471,702			90.0			1,761,396			90.3			1,401,886			87.4
General and administrative expense		25,597			4.5			21,913			4.2			79,067			4.1			65,560			4.1
Depreciation and amortization expense		10,071			1.7			7,131			1.4			27,802			1.4			21,322			1.3
Merger expenses		747			0.1			0			0.0			3,335			0.2			0			0.0
Severance and other charges		0			0.0			490			0.1			701			0.0			932			0.1

Operating income		11,210			1.9			22,729			4.3			79,003			4.0			114,885			7.1
Income from joint ventures		453			0.1			357			0.1			2,112			0.1			2,771			0.2
Interest expense		(1,321	)		0.2			(373	)		0.1			(4,280	)		0.2			(979	)		0.0
Interest and other income, net		75			0.0			969			0.2			334			0.1			1,913			0.1
Gain on sale of joint venture interest		0			0.0			0			0.0			0			0.0			26,362			1.6

Pre-tax income		10,417			1.8			23,682			4.5			77,169			4.0			144,952			9.0
Provision for income taxes		4,272			0.7			8,103			1.5			30,522			1.6			55,411			3.4

Net income	$	6,145			1.1	%	$	15,579			3.0	%	$	46,647			2.4	%	$	89,541			5.6	%


	Three Months Ended December 31,				Nine Months Ended December 31,
	2007		2006		2007		2006

Sales volume by commodity (In thousands):
Ferrous metals (tons)		1,301		1,176		4,124		3,514
Non-ferrous metals (lbs.)		117,286		126,712		362,501		392,024
Brokerage – ferrous (tons)		64		146		333		312
Brokerage – non-ferrous (lbs.)		1,021		969		2,679		3,882

Net Sales

Consolidated net sales increased by $58.1 million (11.1%) and $346.7 million (21.6%) to $582.1 million and $2.0 billion in the three and nine months ended December 31, 2007, respectively, compared to $524.0 million and $1.6 billion in the three and nine months ended December 31, 2006, respectively. The increase was primarily due to higher ferrous metals sales associated with higher average selling prices and sales volumes, offset in part by lower non-ferrous sales volumes compared to the three and nine months ended December 31, 2006. We recognized record net sales for a nine month period in the nine months ended December 31, 2007.

Ferrous Sales

Ferrous sales increased by $95.3 million (31.7%) and $342.1 million (36.1%) to $395.7 million and $1.3 billion in the three and nine months ended December 31, 2007, respectively, compared to $300.4 million and $946.5 million in the three and nine months ended December 31, 2006, respectively. The increase was due to higher average selling prices which increased by $49 per ton (19.1%) to $304 per ton and by $43 per ton (16.0%) to $312 per ton in the three and nine months ended December 31, 2007, respectively, compared to $255 per ton and $269 per ton in the three and nine months ended December 31, 2006, respectively. In addition, sales volumes increased by 125,000 tons (10.6%) to 1.3 million tons and by 610,000 tons (17.4%) to 4.1 million tons in the three and nine months ended December 31, 2007, respectively, compared to 1.2 million tons and 3.5 million tons in the three and nine months ended December 31, 2006, respectively.

The increase in selling prices for ferrous scrap is evident in data published by the American Metal Market (“AMM”). According to AMM, the average price for #1 Heavy Melting Steel Scrap – Chicago (which is a common indicator for ferrous scrap) was approximately $263 per ton in both the three and nine months ended December 31, 2007, respectively, compared to $201 per ton and $222 per ton in the three and nine months ended December 31, 2006, respectively. In addition to changes in product mix, our average ferrous selling prices are also impacted by the amount of ferrous scrap sold on a destination basis where our selling price includes freight costs. We have also experienced higher freight costs contributing to higher realized selling prices. Freight costs tend to be a pass through, which increase realized prices but do not significantly affect operating income. In the three and nine months ended December 31, 2007, we had more destination-based ferrous sales (mainly export sales) compared to the three and nine months ended December 31, 2006.

The increase in sales volumes was primarily due to additional tons sold to international markets. In the nine months ended December 31, 2007, we exported 1,379,000 tons of ferrous scrap compared to 1,100,000 tons in the nine months ended December 31, 2006. Recent acquisitions also contributed to increased scrap flows.

Non-ferrous Sales

Non-ferrous sales decreased by $19.6 million (10.7%) and $10.7 million (1.9%) to $163.1 million and $548.0 million in the three and nine months ended December 31, 2007, respectively, compared to $182.7 million and $558.7 million in the three and nine months ended December 31, 2006, respectively. The decline was primarily due to a decrease in sales volumes of 9.4 million pounds (7.4%) and 29.5 million pounds (7.5%) in the three and nine months ended December 31, 2007, respectively, compared to the three and nine months ended December 31, 2006.

In addition, the non-ferrous sales decrease in the three months ended December 31, 2007 was due to lower average selling prices which decreased by $0.05 per pound (3.5%) to $1.39 per pound. Sales volumes

were impacted by sales disruptions for copper and aluminum into southern China in the second quarter of fiscal 2008, as well as sequentially weaker demand for stainless steel, which had been a strong driver for us until the end of the second quarter of fiscal 2008.

The decrease in non-ferrous prices was evident in data published by the London Metals Exchange (“LME”). According to LME data, average aluminum and nickel prices were 10.4% and 11.2% lower, respectively, in the three months ended December 31, 2007 compared to the three months ended December 31, 2006. We believe non-ferrous prices declined in anticipation of slower economic growth.

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

Brokerage Sales

Brokerage ferrous sales decreased by $17.5 million (49.8%) to $17.6 million in the three months ended December 31, 2007 compared to $35.1 million in the three months ended December 31, 2006. The decrease was due to lower brokered ferrous sales volumes, which decreased by 82,000 tons (56.2%) in the three months ended December 31, 2007. Brokerage ferrous sales increased by $19.2 million (24.6%) to $97.2 million in the nine months ended December 31, 2007 compared to $78.0 million in the nine months ended December 31, 2006. The increase in the nine months ended December 31, 2007 was due to higher brokered ferrous sales volumes, which increased by 21,000 tons (6.7%). Average ferrous brokered selling prices increased by $35 per ton (14.4%) to $275 per ton and by $42 per ton (16.7%) to $292 per ton in the three and nine months ended December 31, 2007 compared to the three and nine months ended December 31, 2006. The average selling prices for brokered ferrous metals is significantly affected by the product mix, such as prompt industrial grades versus obsolete grades, which can vary significantly between periods. Prompt industrial grades of ferrous scrap metal are generally associated with higher unit prices. The volume of ferrous brokerage shipments varies with our export strategies that change from quarter to quarter.

Brokerage non-ferrous sales increased by $0.3 million (19.6%) to $1.7 million in the three months ended December 31, 2007 compared to $1.4 million in the three months ended December 31, 2006. The increase was primarily due to higher selling prices which increased by $0.19 per pound (13.2%) to $1.63 per pound. Brokerage non-ferrous sales decreased by $2.4 million (35.0%) to $4.5 million in the nine months ended December 31, 2007 compared to $6.9 million in the nine months ended December 31, 2006. The decrease was due to lower brokered non-ferrous sales volumes, which decreased by 1.2 million pounds (31.0%) compared to the nine months ended December 31, 2006. Margins associated with brokered non-ferrous metals are narrow so variations in this product category are not as significant to us as variations in other product categories. The average selling prices for brokered non-ferrous sales can vary greatly based on product mix.

Other Sales

Other sales are primarily derived from our stevedoring and bus dismantling operations. Stevedoring is a fee for service business primarily associated with our dock operations at Port Newark terminal. The decrease in other sales in the three and nine months ended December 31, 2007 was a result of lower stevedoring service based revenue.

Cost of Sales (excluding depreciation)

Cost of sales consists of material costs, freight costs and processing expenses. Cost of sales increased by $62.8 million (13.3%) and $359.5 million (25.6%) to $534.5 million and $1.8 billion in the three and nine months ended December 31, 2007, respectively, compared to $471.7 million and $1.4 billion in the three and nine months ended December 31, 2006, respectively. The increase was primarily due to higher material costs, which increased by $56.2 million (14.8%) and $305.6 million (26.8%) in the three and nine months ended December 31, 2007, respectively, compared to the three and nine months ended December 31, 2006, and increased processing expenses. Also contributing to the increase in the nine months ended December 31, 2007 were higher freight costs. Freight costs in the three months ended December 31, 2007 were relatively unchanged when compared to the three months ended December 31, 2006.

Freight costs were higher by $29.7 million (24.2%) in the nine months ended December 31, 2007 due to a higher percentage of sales made on delivered contracts, higher freight rates and additional freight and demurrage costs incurred as a result of remarketing ferrous scrap metal that was originally sold to WPSC (see discussion under “Recent Events” above). Processing costs increased by $11.0 million (23.9%) and $24.2 million (17.7%) in the three and nine months ended December 31, 2007, respectively, due to higher labor, fuel and operating lease costs and increased unit shipments. A portion of the increase in cost of sales was also due to recent acquisitions.

General and Administrative Expense

General and administrative expense was $25.6 million and $79.1 million in the three and nine months ended December 31, 2007, respectively, compared to $21.9 million and $65.6 million in the three and nine months ended December 31, 2006. The increase was primarily due to higher compensation expense and professional fees.

Compensation expense increased by $2.4 million and $8.2 million in the three and nine months ended December 31, 2007, respectively, primarily due to higher salary expense, as a result of an increase in headcount associated with recent acquisitions and higher stock-based compensation expense. Professional fees increased by $0.7 million and $3.2 million in the three and nine months ended December 31, 2007, respectively, primarily due to legal expenses associated with the WPSC lawsuit. In the three and nine months ended December 31, 2007, legal expenses associated with the WPSC lawsuit were $0.8 million and $2.1 million, respectively.

Depreciation and Amortization Expense

Depreciation expense was $9.1 million and $25.1 million in the three and nine months ended December 31, 2007, respectively, compared to depreciation expense of $6.5 million and $19.5 million in the three and nine months ended December 31, 2006, respectively. Amortization expense was $1.0 million and $2.7 million in the three and nine months ended December 31, 2007, respectively, compared to amortization expense of $0.7 million and $1.8 million in the three and nine months ended December 31, 2006, respectively.

The increase in depreciation expense was due to the significant capital investments we have made in the last three years as well as depreciation expense associated with fixed assets acquired in recent acquisitions. The increase in amortization expense was a result of intangible assets associated with recent acquisitions. In the three and nine months ended December 31, 2007, depreciation and amortization expense increased by $1.2 million and $2.7 million, respectively, due to recent acquisitions.

Merger Expenses

In the three and nine months ended December 31, 2007, we incurred costs associated with our pending merger with Sims of $0.7 million and $3.3 million, respectively, consisting primarily of legal, accounting and investment banking fees.

Severance and Other Charges

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

In the three months ended June 30, 2006, we recognized severance and other charges of approximately $0.4 million related to the termination of a former Executive Vice President. In the three months ended December 31, 2006, we recognized severance and other charges of approximately $0.5 million related to the settlement of claims between us and some former officers and directors.

Income from Joint Ventures

Income from joint ventures was $0.5 million and $2.1 million in the three and nine months ended December 31, 2007, respectively, compared to $0.4 million and $2.8 million in the three and nine months

ended December 31, 2006, respectively. The increase in the three months ended December 31, 2007 was primarily attributable to higher income from our Metal Management Nashville, LLC joint venture. The decrease in the nine months ended December 31, 2007 was due to the sale of our 28.5% interest in Southern Recycling, LLC (“Southern”) in April 2006. We recognized $1.0 million of joint venture income from Southern in the nine months ended December 31, 2006. We currently have a 50% ownership interest in three joint ventures.

Interest Expense

Interest expense was $1.3 million and $4.3 million in the three and nine months ended December 31, 2007, respectively, compared to $0.4 million and $1.0 million in the three and nine months ended December 31, 2006, respectively. The increase was due to interest incurred from borrowings under our credit agreement which were primarily used to fund acquisitions. At December 31, 2006, we had no borrowings outstanding under the credit agreement. See “Liquidity and Capital Resources” below for a more detailed discussion of the increase in borrowings.

Interest and Other Income

Interest and other income was $0.1 million and $0.3 million in the three and nine months ended December 31, 2007, respectively, compared to $1.0 million and $1.9 million in three and nine months ended December 31, 2006, respectively. The decrease was due to lower dividend and interest income as we liquidated our short-term investments in the current fiscal year to fund our operations and acquisitions.

Gain on Sale of Joint Venture Interest

On April 28, 2006, we and our joint venture partner sold our membership interests in Southern to a third party for $161.4 million in cash. Based upon our ownership interest, we received $46.0 million in cash from the sale proceeds. We recorded a pre-tax gain from the sale of our ownership interest of $26.4 million in the nine months ended December 31, 2006.

Income Taxes

In the three and nine months ended December 31, 2007, we recognized income tax expense of $4.3 million and $30.5 million, respectively, resulting in an effective tax rate of approximately 41.0% and 39.6%, respectively. In the three and nine months ended December 31, 2006, our income tax expense was $8.1 million and $55.4 million, respectively, resulting in an effective tax rate of 34.2% and 38.2%, respectively. The effective tax rate increased due to non-deductible merger expenses, higher non-deductible stock-based compensation and additional income taxes recorded for unrecognized tax positions. The effective tax rate differs from the federal statutory rate mainly due to state taxes and permanent tax items.

Net Income

Net income was $6.1 million and $46.6 million in the three and nine months ended December 31, 2007, respectively, compared to $15.6 million and $89.5 million in the three and nine months ended December 31, 2006, respectively. Net income decreased due to lower non-ferrous margins, higher processing and general and administrative expenses, higher depreciation and amortization expenses and merger expenses recognized in the three and nine months ended December 31, 2007. Net income in the nine months ended December 31, 2006 benefited from the one-time after-tax gain of $16 million recognized on the sale of our ownership interest in Southern.

Liquidity and Capital Resources

Our sources of liquidity include cash and cash equivalents, collections from customers and borrowings under our credit agreement. Cash and cash equivalents totaled $12.6 million at December 31, 2007, an increase of $3.3 million from March 31, 2007. We believe these sources are adequate to fund operating expenses and related liabilities, planned capital expenditures, acquisitions, the payment of cash dividends to stockholders and our stock repurchase program.

We have a $300 million secured revolving credit and letter of credit facility, with a maturity date of May 1, 2011 (“Credit Agreement”). Pursuant to the Credit Agreement, we pay a fee on the undrawn portion of the facility that is determined by the leverage ratio. Significant covenants under the Credit Agreement include the satisfaction of a leverage ratio and interest coverage ratio. The Credit Agreement permits capital

expenditures of $85 million for the year ending March 31, 2008. In addition, the Credit Agreement limits the amount we can spend on stock repurchases to $100 million during the term of the Credit Agreement. We satisfied all of our covenants under the Credit Agreement as of December 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 our leverage ratio (as defined in the Credit Agreement) as determined for the trailing four fiscal quarters.

At December 31, 2007, our total indebtedness was $61.0 million, of which $59.6 million was outstanding under the Credit Agreement. At March 31, 2007, we had no borrowings outstanding under the Credit Agreement. Total unused borrowings under the Credit Agreement were approximately $233.5 million and $293.1 million at December 31, 2007 and March 31, 2007, respectively. Borrowings in the nine months ended December 31, 2007 increased primarily to fund the acquisitions of Mars and Universal, capital expenditures, merger expenses, and working capital changes since March 31, 2007. The dispute involving WPSC has also negatively affected working capital in fiscal 2008.

Cash Flows

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


	Nine Months Ended
	December 31,			December 31,
	2007			2006

Net cash provided by operating activities	$	48,952		$	80,596
Net cash used in investing activities	$	(99,197	)	$	(20,646	)
Net cash provided by (used in) financing activities	$	53,495		$	(17,857	)

Operating Activities

Net cash provided by operating activities decreased in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006 due to lower net income adjusted for non-cash items and an increase in working capital investments. The increase in working capital investments was mainly due to a reduction in accounts payable due in part to lower purchase prices for scrap metal, offset by higher accounts receivable collections due to a reduction in day sales outstanding.

Investing Activities

Net cash used in investing activities increased in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006. In the nine months ended December 31, 2007, we used $54.9 million of cash for acquisitions and $44.5 million of cash for capital expenditures. In the nine months ended December 31, 2006, we received $46.0 million of cash from the sale of our ownership interest in Southern and $9.6 million of cash from the sale of short-term investments. These cash proceeds were used, in part, for acquisitions of $28.6 million and capital expenditures of $48.1 million.

Financing Activities

Net cash provided by financing activities increased in the nine months ended December 31, 2007 compared to the nine months ended December 31, 2006. The increase was due to $56.6 million of borrowings which were used to fund acquisitions and capital expenditures. In the nine months ended December 31, 2006, we used $20.8 million of cash for the repurchase of our common stock.

Off-Balance Sheet Arrangements, Contractual Obligations and Other Commitments

Off-Balance Sheet Arrangements

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

Contractual Obligations

In our Annual Report for fiscal 2007, we disclosed our contractual obligations. There have been no material changes to contractual obligations other than an increase in total debt to $61.0 million at December 31, 2007 compared to $0.2 million at March 31, 2007. The increase in total debt was due to borrowings under our Credit Agreement as described above under “Liquidity and Capital Resources.” In addition, see “Note 9 – Income Taxes” in the notes to the consolidated financial statements regarding potential obligations related to uncertain tax positions that we believe may be settled in the next twelve months.

Other Commitments

We are required to make contributions to our defined benefit pension plans. These contributions are required under the minimum funding requirements of the Employee Retirement Income Security Act (ERISA). However, due to uncertainties regarding significant assumptions involved in estimating future required contributions, such as pension plan benefit levels, interest rate levels and the amount of pension plan asset returns, we are not able to reasonably estimate the amount of future required contributions beyond fiscal 2008. Our minimum required pension contribution for fiscal 2008 is approximately $0.8 million, all of which was paid in the nine months ended December 31, 2007.

We also enter into letters of credit in the ordinary course of operating and financing activities. As of January 15, 2008, we had outstanding letters of credit of $6.9 million, much of which is securing insurance policies.

Critical Accounting Policies

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

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

Income Taxes

On April 1, 2007, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income tax positions. This interpretation requires us to recognize in the consolidated financial statements only those tax positions determined to be more likely than not of being sustained upon examination, based on the technical merits of the positions. See “Note 9 – Income Taxes” in the notes to the consolidated financial statements regarding the impact of the adoption of FIN 48.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“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 expect the adoption of SFAS No. 157 to have a material effect on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective for fiscal years beginning after November 15,

2007. We do not expect the adoption of SFAS No. 159 to have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies and requires the expensing of acquisition-related costs as incurred. SFAS No. 141(R) is effective for us beginning April 1, 2009 and will apply prospectively to business combinations completed on or after that date.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51”, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for us beginning April 1, 2009 and will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. We are currently evaluating the potential impact of adopting SFAS No. 160 on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

Evaluation of our Disclosure Controls and Procedures.

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

Based upon this evaluation, our CEO and our CFO have concluded that our disclosure controls and procedures were effective as of December 31, 2007 to provide reasonable assurance that information that is required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, or persons performing similar functions, as appropriate to allow for timely decisions regarding disclosure.

There has been no change in our internal control over financial reporting during the three months ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

CEO and CFO Certifications.

As an exhibit to this report, there are “Certifications” of the CEO and CFO. The first form of Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. This section of the quarterly report is the information concerning the controls evaluation referred to in the Section 302

Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Limitations on the Effectiveness of Controls.

Our management, including our CEO and our CFO, does not expect that our disclosure controls or our internal controls and procedures 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 a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

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 currently scheduled for hearing in July 2008. 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.

Item 1A. Risk Factors.

In addition to the following and the risk factors previously disclosed in our Annual Report on Form 10-K for fiscal 2007, all of the risk factors included under the heading “Risk Factors” appearing in Sims Group Limited’s Amendment No. 1 to Registration Statement on Form F-4 (Registration No. 333-147659) filed with the SEC on January 17, 2008, as the same may be amended from time to time, are hereby incorporated by reference into this Form 10-Q.

Risks associated with our pending merger with Sims

In the event our merger with Sims is not consummated, the price of our stock may be affected.

Our closing stock price was $48.86 on September 21, 2007 and closed at $54.74 on September 25, 2007, after the announcement of the merger. We believe the increase in the stock price was primarily due to the exchange ratio of Sims ADS per share of our common stock, which represented a premium of approximately 18.2% over the price of the trading day immediately preceding the announcement of the execution of the Merger Agreement. On January 18, 2008, our closing stock price was $45.95, and the closing stock price of Sims’ common stock was A$27.47. In the event the merger with Sims is not consummated, the price of our common stock may be adversely affected because the stockholders will not receive the premium contemplated by the Merger Agreement.

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

Item 6. Exhibits


2	.1	Agreement and Plan of Merger, dated as of September 24, 2007, by and among Sims Group Limited, MMI Acquisition Corporation, and Metal Management, Inc. (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K dated September 24, 2007).
3	.1	Second Amended and Restated Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on June 29, 2001 (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2001).
3	.2	Amended and Restated By-Laws of the Company adopted as of April 29, 2003 (incorporated by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2003).
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.
99	.1	“Risk Factors” incorporated by reference to pages 15-28 of Sims Group Limited’s Amendment No. 1 to Registration Statement on Form F-4 (Registration No. 333-147659) filed with the SEC on January 17, 2008.

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PART I: FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Operations — three and nine months ended December 31, 2007 and 2006 (unaudited)		1

		Consolidated Balance Sheets — December 31, 2007 and March 31, 2007 (unaudited)		2

		Consolidated Statements of Cash Flows — nine months ended December 31, 2007 and 2006 (unaudited)		3

		Consolidated Statement of Stockholders’ Equity — nine months ended December 31, 2007 (unaudited)		4

		Notes to Consolidated Financial Statements (unaudited)		5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27

	Item 4.	Controls and Procedures		27

PART II: OTHER INFORMATION

	Item 1.	Legal Proceedings		29

	Item 1A.	Risk Factors		30

	Item 6.	Exhibits		30

Signatures				31
Certification
Certification
Certification
"Risk Factors"


	By:	/s/ Daniel W. Dienst


	By:	/s/ Robert C. Larry


	By:	/s/ Amit N. Patel