##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Metalico, Inc.
  Delaware(State or other jurisdiction of 
incorporation or organization)
    
    001-32453(Commission file number)
    
    52-2169780(I.R.S. Employer Identification No.)186 North Avenue East 
Cranford, NJ
    
    07016
    
    (908) 497-9610(Address of Principal Executive Offices)
    
    (Zip Code)
    
    (Registrants Telephone Number)
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting company o
 o þ




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##### 



METALICO, INC.
Form 10-Q Quarterly Report
Table of Contents
 PART IItem 1.
    
    Unaudited Condensed Consolidated Financial Statements
    
    Page 2Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    Page 18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    Page 26Item 4.
    
    Controls and Procedures
    
    Page 26PART IIItem 1.
    
    Legal Proceedings
    
    Page 27Item 1A.
    
    Risk Factors
    
    Page 27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 27Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    Page 27Item 6.
    
    Exhibits
    
    Page 28Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial OfficerEX-10.3EX-10.4EX-10.5EX-10.6EX-10.26EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Unaudited Condensed Consolidated Financial Statements
 METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2008 and December 31, 2007
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)($ thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    8,704
    
    
    $
    3,309Trade receivables, net
    
    
    94,779
    
    
    
    41,668Inventories
    
    
    88,693
    
    
    
    49,548Vendor advances, net
    
    
    13,606
    
    
    
    286Prepaid expenses and other
    
    
    3,332
    
    
    
    4,606Deferred income taxes
    
    
    3,908
    
    
    
    3,874Total Current Assets
    
    
    213,022
    
    
    
    103,291Cash restricted for investment
    
    
    
    
    
    
    9,232Investment in unconsolidated investees
    
    
    7,038
    
    
    
    Property and equipment, net
    
    
    80,268
    
    
    
    44,708Goodwill
    
    
    125,106
    
    
    
    78,565Other intangibles, net
    
    
    47,105
    
    
    
    22,525Other assets, net
    
    
    8,852
    
    
    
    11,249Total Assets
    
    $
    481,391
    
    
    $
    269,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt
    
    $
    8,231
    
    
    $
    5,887Current maturities of other long-term debt
    
    
    7,410
    
    
    
    5,497Accounts payable
    
    
    23,470
    
    
    
    19,197Accrued expenses
    
    
    17,559
    
    
    
    8,405Income taxes payable
    
    
    8,565
    
    
    
    2,485Total Current Liabilities
    
    
    65,235
    
    
    
    41,471Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    207,902
    
    
    
    83,719Put warrants
    
    
    14,874
    
    
    
    Accrued and other
    
    
    7,237
    
    
    
    6,708Deferred income taxes
    
    
    12,543
    
    
    
    5,882Total Long-Term Liabilities
    
    
    242,556
    
    
    
    96,309Total Liabilities
    
    
    307,791
    
    
    
    137,780Minority interest
    
    
    
    
    
    
    7,773Redeemable common stock
    
    
    4,000
    
    
    
    Stockholders EquityCommon stock
    
    
    36
    
    
    
    32Additional paid-in capital
    
    
    129,644
    
    
    
    98,188Retained earnings
    
    
    40,313
    
    
    
    26,133Accumulated other comprehensive loss
    
    
    (393
    )
    
    
    (336
    )169,600
    
    
    
    124,017Total Liabilities and Stockholders Equity
    
    $
    481,391
    
    
    $
    269,570
  2




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2008 and 2007
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)($ thousands, except per share data)Revenue
    
    $
    295,062
    
    
    $
    66,765
    
    
    $
    465,610
    
    
    $
    118,517Costs and expensesOperating expenses
    
    
    249,692
    
    
    
    54,957
    
    
    
    397,940
    
    
    
    96,719Selling, general, and administrative expenses
    
    
    11,804
    
    
    
    4,202
    
    
    
    18,958
    
    
    
    7,901Depreciation and amortization
    
    
    3,494
    
    
    
    1,385
    
    
    
    5,521
    
    
    
    2,482264,990
    
    
    
    60,544
    
    
    
    422,419
    
    
    
    107,102Operating income
    
    
    30,072
    
    
    
    6,221
    
    
    
    43,191
    
    
    
    11,415Financial and other income (expense)Interest expense
    
    
    (4,223
    )
    
    
    (685
    )
    
    
    (7,440
    )
    
    
    (1,089
    )Put warrants fair value adjustment
    
    
    (7,798
    )
    
    
    
    
    
    
    (7,798
    )
    
    
    Other
    
    
    49
    
    
    
    187
    
    
    
    173
    
    
    
    295(11,972
    )
    
    
    (498
    )
    
    
    (15,065
    )
    
    
    (794
    )Income from continuing operations
before income taxes and minority
interest
    
    
    18,100
    
    
    
    5,723
    
    
    
    28,126
    
    
    
    10,621Provision for federal and state income taxes
    
    
    9,856
    
    
    
    2,135
    
    
    
    13,566
    
    
    
    3,901Income from continuing operations
before minority interest
    
    
    8,244
    
    
    
    3,588
    
    
    
    14,560
    
    
    
    6,720Minority interest
    
    
    252
    
    
    
    96
    
    
    
    410
    
    
    
    132Income from continuing operations
    
    
    8,496
    
    
    
    3,684
    
    
    
    14,970
    
    
    
    6,852Discontinued operations, net of income taxes
    
    
    (385
    )
    
    
    62
    
    
    
    (790
    )
    
    
    2Net income
    
    $
    8,111
    
    
    $
    3,746
    
    
    $
    14,180
    
    
    $
    6,854Earnings (loss) per common share:Basic:Income from continuing operations
    
    $
    0.24
    
    
    $
    0.14
    
    
    $
    0.44
    
    
    $
    0.26Discontinued operations, net
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.42
    
    
    $
    0.26Diluted:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.14
    
    
    $
    0.43
    
    
    $
    0.26Discontinued operations, net
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.22
    
    
    $
    0.14
    
    
    $
    0.41
    
    
    $
    0.26Weighted Average Common Shares Outstanding:Basic
    
    
    35,810,875
    
    
    
    26,491,063
    
    
    
    34,075,172
    
    
    
    26,312,400Diluted
    
    
    41,057,092
    
    
    
    26,896,334
    
    
    
    36,852,598
    
    
    
    26,764,339
  3




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    14,180
    
    
    $
    6,854Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    5,666
    
    
    
    2,284Deferred income taxes
    
    
    942
    
    
    
    (806
    )Provision for doubtful accounts receivable
    
    
    1,804
    
    
    
    18Provision for loss on vendor advances
    
    
    1,414
    
    
    
    Put warrants fair value adjustments
    
    
    7,798
    
    
    
    Loss on sale of property and equipment
    
    
    400
    
    
    
    206Minority interest in loss of consolidated subsidiary
    
    
    (410
    )
    
    
    (132
    )Compensation expense on restricted stock, stock options and warrants issued
    
    
    800
    
    
    
    274Excess tax benefit from stock options
    
    
    (134
    )
    
    
    (57
    )Change in assets and liabilities, net of acquisitions:(Increase) decrease in:Trade receivables
    
    
    (50,795
    )
    
    
    (9,181
    )Inventories
    
    
    (24,640
    )
    
    
    (1,705
    )Vendor advances
    
    
    (9,036
    )
    
    
    Prepaid expenses and other
    
    
    640
    
    
    
    (1,189
    )Increase (decrease) in:Accounts payable, accrued expenses, and income taxes payable
    
    
    13,820
    
    
    
    (1,594
    )Net cash used in operating activities
    
    
    (37,551
    )
    
    
    (5,028
    )Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    100
    
    
    
    19Purchase of property and equipment
    
    
    (9,494
    )
    
    
    (5,711
    )Change in cash restricted for investment
    
    
    9,232
    
    
    
    3,986Investments in unconsolidated subsidiary
    
    
    (600
    )
    
    
    (3,600
    )(Increase) decrease in other assets
    
    
    (4,380
    )
    
    
    (1,180
    )Cash paid for business acquisitions, less cash acquired
    
    
    (107,023
    )
    
    
    (10,616
    )Net cash used in investing activities
    
    
    (112,165
    )
    
    
    (17,102
    )Cash Flows from Financing ActivitiesSale of common stock
    
    
    28,497
    
    
    
    34,214Proceeds from issuance of subsidiary stock
    
    
    3,875
    
    
    
    225Net borrowings (payments) under revolving lines-of-credit
    
    
    11,720
    
    
    
    (8,492
    )Proceeds from other borrowings
    
    
    118,190
    
    
    
    5,856Proceeds from borrowings of subsidiary
    
    
    1,700
    
    
    
    Principal payments on other borrowings
    
    
    (3,841
    )
    
    
    (2,774
    )Excess tax benefit from stock-based compensation
    
    
    134
    
    
    
    57Debt issue costs
    
    
    (5,510
    )
    
    
    Proceeds from issuance of common stock on exercised warrants and options
    
    
    346
    
    
    
    469Net cash provided by financing activities
    
    
    155,111
    
    
    
    29,555Net increase in cash and cash equivalents
    
    
    5,395
    
    
    
    7,425Cash and cash equivalents:Beginning
    
    
    3,309
    
    
    
    1,462Ending
    
    $
    8,704
    
    
    $
    8,887
  4




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ thousands, except share data)
(Unaudited)
 Note 1  General
 Business
  Basis of Presentation
    Recent Accounting Standards and Pronouncements
   5




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Significant Accounting Policies
 Vendor Advances :
 Investment in Beacon Holdings:
 Note 2  Business Acquisitions and Goodwill
 Business acquisition (scrap metal recycling segment):
  AssetsCash
    
    $
    694Inventory
    
    
    10,790Other current assets
    
    
    44Property and equipment
    
    
    29,465Covenants not-to-compete
    
    
    1,400Other Intangibles
    
    
    7,820Goodwill
    
    
    31,890Net assets acquired
    
    $
    82,103
   6




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##### Table of Contents



Three Months Ended
    
    Three Months Ended
    
    Six Months Ended
    
    Six Months EndedJune 30, 2008
    
    June 30, 2007
    
    June 30, 2008
    
    June 30, 2007Revenues
    
    $
    315,059
    
    
    $
    101,930
    
    
    $
    521,231
    
    
    $
    177,860Net Income
    
    $
    12,864
    
    
    $
    4,646
    
    
    $
    22,702
    
    
    $
    9,654Earnings Per ShareBasic
    
    $
    0.36
    
    
    $
    0.18
    
    
    $
    0.66
    
    
    $
    0.37Diluted
    
    $
    0.31
    
    
    $
    0.17
    
    
    $
    0.58
    
    
    $
    0.36
 Business acquisition (scrap metal recycling segment):
   AssetsCash
    
    $
    6Accounts receivable
    
    
    4,120Inventory
    
    
    3,715Other current assets
    
    
    5,793Property and equipment
    
    
    782Other Intangibles
    
    
    3,783Goodwill
    
    
    15,134Liabilities AssumedAccounts payable and accrued expenses
    
    
    (18
    )Short term debt and notes payable
    
    
    (154
    )Net assets acquired
    
    $
    33,161
   7




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##### Table of Contents



Three Months Ended
    
    Six Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2008
    
    June 30, 2007Revenues
    
    $
    97,326
    
    
    $
    479,843
    
    
    $
    179,639Net Income
    
    $
    4,666
    
    
    $
    14,784
    
    
    $
    8,693Earnings Per ShareBasic
    
    $
    0.17
    
    
    $
    0.43
    
    
    $
    0.32Diluted
    
    $
    0.17
    
    
    $
    0.42
    
    
    $
    0.32
 Business acquisition (scrap metal recycling segment):
 AssetsCash
    
    $
    281Accounts receivable
    
    
    3,405Inventory
    
    
    3,637Other current assets
    
    
    1,002Property and equipment
    
    
    859Other assets
    
    
    10Covenants not-to-compete
    
    
    1,730Other intangibles
    
    
    13,719Goodwill
    
    
    27,092Liabilities AssumedAccounts payable and accrued expenses
    
    
    (2,435
    )Short term debt and notes payable
    
    
    (2,968
    )Present value of put option for remaining 17.5%
    
    
    (5,734
    )Deferred tax liabilities
    
    
    (5,867
    )Other liabilities
    
    
    (1,743
    )Net assets acquired
    
    $
    32,988
   Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Revenues
    
    $
    78,850
    
    
    $
    139,061Net Income
    
    $
    2,806
    
    
    $
    5,314Earnings Per ShareBasic
    
    $
    0.11
    
    
    $
    0.20Diluted
    
    $
    0.10
    
    
    $
    0.20
 8




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##### Table of Contents



Business acquisition (scrap metal recycling segment):
 AssetsInventory
    
    $
    3,360Other current assets
    
    
    109Property and equipment
    
    
    7,000Other intangibles
    
    
    13,600Covenants not-to-compete
    
    
    55Goodwill
    
    
    9,961Liabilities AssumedAccounts payable and accrued expenses
    
    
    (575
    )Net assets acquired
    
    $
    33,510
   Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Revenues
    
    $
    82,124
    
    
    $
    149,492Net Income
    
    $
    3,728
    
    
    $
    6,536Earnings Per ShareBasic
    
    $
    0.14
    
    
    $
    0.25Diluted
    
    $
    0.14
    
    
    $
    0.24
 Business acquisition (scrap metal recycling segment):
 9




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##### Table of Contents



AssetsCash
    
    $
    362Accounts receivable
    
    
    3,818Inventory
    
    
    4,846Property and equipment
    
    
    70Other assets
    
    
    7Covenants not-to-compete
    
    
    375Other intangibles
    
    
    3,600Goodwill
    
    
    3,846Liabilities AssumedDebt
    
    
    (2,079
    )Accounts payable and accrued expenses
    
    
    (3,341
    )Deferred tax liabilities
    
    
    (1,342
    )Net assets acquired
    
    $
    10,162
   Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2007Revenues
    
    $
    71,871
    
    
    $
    130,928Net Income
    
    $
    4,087
    
    
    $
    7,636Earnings Per ShareBasic
    
    $
    0.15
    
    
    $
    0.29Diluted
    
    $
    0.15
    
    
    $
    0.29
 Note 3 -Major Customer
  Net sales to Customer as a percentage of Total RevenuesThree Months
    
    Three Months
    
    Six Months
    
    Six Months
    

    Trade Receivable Balance as ofEnded
    
    Ended
    
    Ended
    
    Ended
    
    June 30,
    
    December 31,June 30, 2008
    
    June 30, 2007
    
    June 30, 2008
    
    June 30, 2007
    
    2008
    
    2007Customer A
    
    
    32
    %
    
    
    
    
    
    
    33
    %
    
    
    
    
    
    $
    16,539
    
    
    $
    5,550
 Note 4  Inventories
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    11,829
    
    
    $
    13,226Finished goods
    
    
    12,274
    
    
    
    12,704Work-in-process
    
    
    3,012
    
    
    
    7,216Ferrous scrap metal
    
    
    15,334
    
    
    
    5,427Non-ferrous scrap metal
    
    
    46,244
    
    
    
    10,975$
    88,693
    
    
    $
    49,548
 10




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##### Table of Contents



Note 5  Accrued Expenses and Other Liabilities
  June 30, 2008
    
    
    December 31, 2007Current
    
    
    Long-Term
    
    
    Total
    
    
    Current
    
    
    Long-Term
    
    
    TotalEnvironmental remediation costs
    
    $
    1,040
    
    
    $
    1,014
    
    
    $
    2,054
    
    
    $
    2,933
    
    
    $
    714
    
    
    $
    3,647Payroll and employee benefits
    
    
    6,581
    
    
    
    
    
    
    
    6,581
    
    
    
    2,699
    
    
    
    
    
    
    
    2,699Interest and bank fees
    
    
    2,431
    
    
    
    
    
    
    
    2,431
    
    
    
    971
    
    
    
    
    
    
    
    971Obligations under put options
    
    
    
    
    
    
    6,223
    
    
    
    6,223
    
    
    
    
    
    
    
    5,973
    
    
    
    5,973Obligations under seller earnout agreements
    
    
    4,388
    
    
    
    
    
    
    
    4,388
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    3,119
    
    
    
    
    
    
    
    3,119
    
    
    
    1,802
    
    
    
    21
    
    
    
    1,823$
    17,559
    
    
    $
    7,237
    
    
    $
    24,796
    
    
    $
    8,405
    
    
    $
    6,708
    
    
    $
    15,113
 Note 6  Stock Options and Stock Based Compensation
   Note 7 Short and Long-Term Debt
  11




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Note 8  Stockholders Equity
    12




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##### Table of Contents



Other
    
    
    TotalCommon
    
    
    Additional
    
    

    Retained
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Paid in Capital
    
    
    Earnings
    
    
    Loss
    
    
    EquityBalance December 31, 2007
    
    $
    32
    
    
    $
    98,188
    
    
    $
    26,133
    
    
    $
    (336
    )
    
    $
    124,017Net Income
    
    
    
    
    
    
    
    
    
    
    14,180
    
    
    
    
    
    
    
    14,180Sale of 2,923,077 shares of common
stock and related warrants net of
offering costs
    
    
    3
    
    
    
    21,504
    
    
    
    
    
    
    
    
    
    
    
    21,507Issuance of 622,222 shares of common
stock for acquisitions
    
    
    1
    
    
    
    8,306
    
    
    
    
    
    
    
    
    
    
    
    8,307Issuance of 500,000 shares of
redeemable common stock for
acquisitions
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of 93,823 shares of common
stock in exchange for options
exercised
    
    
    
    
    
    
    346
    
    
    
    
    
    
    
    
    
    
    
    346Issuance of 163,500 shares of
restricted common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    800Gain on sale of subsidiary stock
    
    
    
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    501Unrealized loss on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    (57
    )Balance June 30, 2008
    
    $
    36
    
    
    $
    129,644
    
    
    $
    40,313
    
    
    $
    (393
    )
    
    $
    169,600
  Note 9  Put Warrants
 Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity
    13




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##### Table of Contents



Note 10  Earnings Per Share
  Three Months Ended June 30, 2008
    
    
    Three Months Ended June 30, 2007Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing
operations available to
common stockholders
    
    $
    8,496
    
    
    
    35,810,875
    
    
    $
    0.24
    
    
    $
    3,684
    
    
    
    26,491,063
    
    
    $
    0.14Effect of Dilutive SecuritiesCommon stock warrants
    
    
    9
    
    
    
    230,072
    
    
    
    
    
    
    
    
    
    
    
    166,552Options and rights
    
    
    
    
    
    
    542,048
    
    
    
    
    
    
    
    
    
    
    
    238,719Convertible notes
    
    
    735
    
    
    
    4,474,097
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing
operations available to
common stockholders plus
assumed conversions
    
    $
    9,240
    
    
    
    41,057,092
    
    
    $
    0.23
    
    
    $
    3,684
    
    
    
    26,896,334
    
    
    $
    0.14
 Six Months Ended June 30, 2008
    
    
    Six Months Ended June 30, 2007Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing
operations available to
common stockholders
    
    $
    14,970
    
    
    
    34,075,172
    
    
    $
    0.44
    
    
    $
    6,852
    
    
    
    26,312,400
    
    
    $
    0.26Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    89,799
    
    
    
    
    
    
    
    
    
    
    
    180,286Options and rights
    
    
    
    
    
    
    450,578
    
    
    
    
    
    
    
    
    
    
    
    271,653Convertible notes
    
    
    735
    
    
    
    2,237,049
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing
operations available to
common stockholders plus
assumed conversions
    
    $
    15,705
    
    
    
    36,852,598
    
    
    $
    0.43
    
    
    $
    6,852
    
    
    
    26,764,339
    
    
    $
    0.26
 Note 11  Commitments and Contingencies
 Environmental RemediationMatters
    14




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##### Table of Contents



Beacon Energy Corp. Investment; Termination of Repurchase Obligation
  Capital Expenditures Commitment -  Mayco Industries, Inc.  Rolling Mill Project
  Pending Litigation
  15




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##### Table of Contents



Note 12  Segment Reporting
  LeadScrap Metal
    
    Fabrication
    
    CorporateRecycling
    
    and Recycling
    
    and Other
    
    ConsolidatedThree months ended June 30, 2008Revenues from external customers
    
    $
    265,289
    
    
    $
    24,648
    
    
    $
    5,125
    
    
    $
    295,062Operating income (loss)
    
    
    31,514
    
    
    
    1,518
    
    
    
    (2,960
    )
    
    
    30,072Three months ended June 30, 2007Revenues from external customers
    
    $
    42,914
    
    
    $
    23,851
    
    
    $
    
    
    
    $
    66,765Operating income (loss)
    
    
    4,471
    
    
    
    3,471
    
    
    
    (1,721
    )
    
    
    6,221Six months ended June 30, 2008Revenues from external customers
    
    $
    408,778
    
    
    $
    51,707
    
    
    $
    5,125
    
    
    $
    465,610Operating income (loss)
    
    
    47,843
    
    
    
    (749
    )
    
    
    (3,903
    )
    
    
    43,191Total assets
    
    
    402,218
    
    
    
    59,326
    
    
    
    19,847
    
    
    
    481,391Six months ended June 30, 2007Revenues from external customers
    
    $
    76,052
    
    
    $
    42,465
    
    
    $
    
    
    
    $
    118,517Operating income (loss)
    
    
    8,486
    
    
    
    6,116
    
    
    
    (3,187
    )
    
    
    11,415Total assets
    
    
    89,309
    
    
    
    48,102
    
    
    
    22,914
    
    
    
    160,325
 Note 13  Income Taxes
  Note 14 Investment in Beacon Energy
    16




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##### Table of Contents



Note 15  Fair Value Disclosure
 Fair Value Measurements
  
    
    Level 1  Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
instruments.
    
    Level 2  Significant other observable inputs other than Level 1
prices such as quoted prices in markets that are not active, quoted
prices for similar instruments, or other inputs that are observable, either
directly or indirectly, for substantially the full term of the instrument.
    
    Level 3  Prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable (i.e.,
supported by little or no market activity).
  Liabilities:
    
    Level 1
    
    Level 2
    
    Level 3
    
    TotalPut warrants
    
    
    
    
    
    
    
    
    
    $
    14,874
    
    
    $
    14,874Interest
rate swaps
    
    
    
    
    
    $
    239
    
    
    
    
    
    
    $
    239
 17




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##### Table of Contents



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 Metalico, Inc. (herein,
Metalico, the Company, we, us, our or other similar terms) expects or anticipates will or
may occur in the future, including such things as future acquisitions (including the amount and
nature thereof), business strategy, expansion and growth of our business and operations, general
economic and market conditions and other such matters are forward-looking statements. Although we
believe the expectations expressed in such forward-looking statements are based on reasonable
assumptions within the bounds of our knowledge of our business, a number of factors could cause
actual results to differ materially from those expressed in any forward-looking statements. These
and other risks, uncertainties and other factors are discussed under Risk Factors appearing in
our Annual Report on Form 10-K for the year ended December 31, 2007, as the same may be amended
from time to time.
 
 tem 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto included under Item 1 of this Report. In
addition, reference should be made to the audited consolidated financial statements and notes
thereto and related Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the year ended December 31, 2007 (Annual
Report).
 General
   Critical Accounting Policies
   Contingencies
  Valuation of Long-lived Assets and Goodwill
  18




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##### Table of Contents



Revenue Recognition
  Accounts Receivable and Allowance for Uncollectible Accounts Receivable
   Vendor Advances
  Inventory
  RESULTS OF OPERATIONS
   RevenuesThree Months Ended
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007($, pounds and tons in thousands)Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    148.0
    
    
    $
    82,144
    
    
    
    27.8
    
    
    
    52.0
    
    
    $
    12,825
    
    
    
    19.2
    
    
    
    233.1
    
    
    $
    114,138
    
    
    
    24.5
    
    
    
    98.4
    
    
    $
    24,483
    
    
    
    20.7Non-ferrous metals (lbs.)
    
    
    38,797
    
    
    
    183,145
    
    
    
    62.1
    
    
    
    20,108
    
    
    
    30,089
    
    
    
    45.1
    
    
    
    73,648
    
    
    
    294,640
    
    
    
    63.3
    
    
    
    36,256
    
    
    
    51,569
    
    
    
    43.5Total Scrap Metal Recycling
    
    
    
    
    
    
    265,289
    
    
    
    89.9
    
    
    
    
    
    
    
    42,914
    
    
    
    64.3
    
    
    
    
    
    
    
    408,778
    
    
    
    87.8
    
    
    
    
    
    
    
    76,052
    
    
    
    64.2Lead Fabrication (lbs.)
    
    
    14,265
    
    
    
    24,648
    
    
    
    8.4
    
    
    
    18,412
    
    
    
    23,851
    
    
    
    35.7
    
    
    
    29,484
    
    
    
    51,707
    
    
    
    11.1
    
    
    
    33,535
    
    
    
    42,465
    
    
    
    35.8Other
    
    
    
    
    
    
    5,125
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,125
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    Total Revenue
    
    
    
    
    
    $
    295.062
    
    
    
    100.0
    
    
    
    
    
    
    $
    66,765
    
    
    
    100.0
    
    
    
    
    
    
    $
    465,610
    
    
    
    100.0
    
    
    
    
    
    
    $
    118,517
    
    
    
    100.0
 19




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##### Table of Contents



Average
    
    Average
    
    AverageFerrous
    
    Non-Ferrous
    
    LeadFor the quarter ending:
    
    Price per ton
    
    Price per lb.
    
    Price per lb.June 30, 2008
    
    $
    555
    
    
    $
    4.72
    
    
    $
    1.73March 31, 2008
    
    $
    379
    
    
    $
    3.54
    
    
    $
    1.78December 31, 2007
    
    $
    278
    
    
    $
    2.23
    
    
    $
    1.98September 30, 2007
    
    $
    278
    
    
    $
    1.95
    
    
    $
    1.67June 30, 2007
    
    $
    246
    
    
    $
    1.50
    
    
    $
    1.30March 31, 2007
    
    $
    252
    
    
    $
    1.33
    
    
    $
    1.23
 Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
  Scrap Metal Recycling
 Ferrous Revenues
  Non-Ferrous Revenues
  Lead Fabrication
  20




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##### Table of Contents



Operating Expenses
  Selling, General, and Administrative
  Depreciation and Amortization
   Operating Income
  Financial and Other Income/(Expense)
 Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity
     21




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##### Table of Contents



Income Taxes
  Discontinued Operations
   Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
  Scrap Metal Recycling
 Ferrous Revenues
  Non-Ferrous Revenues
  Lead Fabrication
  22




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##### Table of Contents



Operating Expenses
  Selling, General, and Administrative
  Depreciation and Amortization
  Operating Income
  Financial and Other Income/(Expense)
 Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity
     23




---



##### Table of Contents



Income Taxes
  Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
    24




---



##### Table of Contents



Future Capital Requirements
     Other Matters
   25




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  Commodity price risk
  Foreign currency risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 (a) Evaluation of disclosure controls and procedures.
   26




---



##### Table of Contents



(b) Changes in internal controls over financial reporting.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
 Item 4. Submission of Matters to a Vote of Security Holders.
  27




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##### Table of Contents



FOR
    
    WITHHELD
    
    NON-VOTECarlos E. Agüero
    
    
    25,568,784
    
    
    
    4,533,855
    
    
    
    0Michael J. Drury
    
    
    26,160,805
    
    
    
    3,941,834
    
    
    
    0Earl B. Cornette
    
    
    29,774,016
    
    
    
    328,623
    
    
    
    0Walter H. Barandiaran
    
    
    29,950,515
    
    
    
    152,124
    
    
    
    0Bret R. Maxwell
    
    
    29,767,387
    
    
    
    335,252
    
    
    
    0Paul A. Garrett
    
    
    29,946,618
    
    
    
    156,021
    
    
    
    0
  FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTE18,998,680
    
    6,230,647
    
    28,620
    
    0
  FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTE29,831,779
    
    216,300
    
    54,560
    
    0
  FOR
    
    AGAINST
    
    ABSTAIN
    
    NON-VOTE24,342,814
    
    193,643
    
    721,490
    
    0
 
 Item 6. Exhibits.
  10.3*
    
    Employment Agreement dated as of March 21, 2007 and effective as of
January 1, 2007 between Metalico, Inc. and Carlos E. Agüero amended
and restated as of June 24, 200810.4*
    
    Employment Agreement dated as of March 21, 2007 and effective as of
January 1, 2007 between Metalico, Inc. and Michael J. Drury amended
and restated as of June 24, 2008
 28




---



##### Table of Contents



10.5*
    
    Employment Agreement dated as of March 21, 2007 and effective as of
January 1, 2007 between Metalico, Inc. and Arnold S. Graber amended
and restated as of June 24, 200810.6*
    
    Employment Agreement dated as of March 21, 2007 and effective as of
January 1, 2007 between Metalico, Inc. and Eric W. Finlayson amended
and restated as of June 24, 200810.26
    
    Form of Subscription and Investment Agreement (Series C) dated May
15, 2008 among Beacon Energy Corp., the investors identified
therein, and Metalico, Inc.31.1
    
    Certification of Chief Executive Officer of Metalico, Inc. pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended31.2
    
    Certification of Chief Financial Officer of Metalico, Inc. pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended32.1
    
    Certification of Chief Executive Officer of Metalico, Inc. pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code32.2
    
    Certification of Chief Financial Officer of Metalico, Inc. pursuant
to Rule 13a-14(a) promulgated under the Securities Exchange Act of
1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code
 29


* Management contract or compensatory plan or arrangement



---



##### Table of Contents



SIGNATURES
  METALICO, INC.
(Registrant)Date: August 5, 2008
    
    By:
    
    /s/ CARLOS E. AGÜEROCarlos E. AgüeroChairman, President and ChiefExecutive OfficerDate: August 5, 2008
    
    By:
    
    /s/ ERIC W. FINLAYSONEric W. FinlaysonSenior Vice President and ChiefFinancial Officer (Principal Financial Officerand Principal Accounting Officer)
 30