##### 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 September 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(Address of Principal Executive Offices)
    
    07016(Zip
Code)
    
    (908) 497-9610(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 27PART IIItem 1.
    
    Legal Proceedings.
    
    Page 28Item 1A.
    
    Risk Factors.
    
    Page 28Item 6.
    
    Exhibits.
    
    Page 28Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial OfficerEX-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 September 30, 2008 and December 31, 2007
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)($ thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    18,140
    
    
    $
    3,309Trade receivables, net
    
    
    80,019
    
    
    
    41,668Inventories
    
    
    56,542
    
    
    
    49,548Prepaid expenses and other
    
    
    6,841
    
    
    
    4,892Deferred income taxes
    
    
    3,963
    
    
    
    3,874Total Current Assets
    
    
    165,505
    
    
    
    103,291Cash restricted for investment
    
    
    
    
    
    
    9,232Property and equipment, net
    
    
    80,799
    
    
    
    44,708Goodwill
    
    
    127,114
    
    
    
    78,565Other intangibles, net
    
    
    46,224
    
    
    
    22,525Other assets, net
    
    
    15,341
    
    
    
    11,249Total Assets
    
    $
    434,983
    
    
    $
    269,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt
    
    $
    
    
    
    $
    5,887Current maturities of other long-term debt
    
    
    7,934
    
    
    
    5,497Accounts payable
    
    
    20,655
    
    
    
    19,197Accrued expenses
    
    
    22,417
    
    
    
    8,405Income taxes payable
    
    
    2,024
    
    
    
    2,485Total Current Liabilities
    
    
    53,030
    
    
    
    41,471Long-Term LiabilitiesSenior unsecured convertible notes payable
    
    
    100,000
    
    
    
    Other long-term debt, less current maturities
    
    
    78,329
    
    
    
    83,719Accrued and other
    
    
    5,305
    
    
    
    6,708Deferred income taxes
    
    
    14,709
    
    
    
    5,882Total Long-Term Liabilities
    
    
    198,343
    
    
    
    96,309Total Liabilities
    
    
    251,373
    
    
    
    137,780Minority interest
    
    
    
    
    
    
    7,773Redeemable common stock
    
    
    4,000
    
    
    
    Stockholders EquityCommon stock
    
    
    36
    
    
    
    32Additional paid-in capital
    
    
    130,079
    
    
    
    98,188Retained earnings
    
    
    49,977
    
    
    
    26,133Accumulated other comprehensive loss
    
    
    (482
    )
    
    
    (336
    )179,610
    
    
    
    124,017Total Liabilities and Stockholders Equity
    
    $
    434,983
    
    
    $
    269,570
  2




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2008 and 2007
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)($ thousands, except per share data)Revenue
    
    $
    288,043
    
    
    $
    102,127
    
    
    $
    753,653
    
    
    $
    220,644Costs and expensesOperating expenses
    
    
    274,397
    
    
    
    84,215
    
    
    
    672,337
    
    
    
    180,934Selling, general, and administrative expenses
    
    
    3,592
    
    
    
    5,782
    
    
    
    22,550
    
    
    
    13,683Depreciation and amortization
    
    
    3,305
    
    
    
    1,667
    
    
    
    8,826
    
    
    
    4,149281,694
    
    
    
    91,664
    
    
    
    703,713
    
    
    
    198,766Operating income
    
    
    6,749
    
    
    
    10,463
    
    
    
    49,940
    
    
    
    21,878Financial and other income (expense)Interest expense
    
    
    (5,001
    )
    
    
    (2,426
    )
    
    
    (12,441
    )
    
    
    (3,515
    )Financial instruments fair value adjustments
    
    
    8,283
    
    
    
    
    
    
    
    485
    
    
    
    Other
    
    
    (56
    )
    
    
    146
    
    
    
    117
    
    
    
    4413,226
    
    
    
    (2,280
    )
    
    
    (11,839
    )
    
    
    (3,074
    )Income from continuing operations
before income taxes and minority
interest
    
    
    9,975
    
    
    
    8,183
    
    
    
    38,101
    
    
    
    18,804Provision for federal and state income taxes
    
    
    270
    
    
    
    2,945
    
    
    
    13,836
    
    
    
    6,846Income from continuing operations
before minority interest
    
    
    9,705
    
    
    
    5,238
    
    
    
    24,265
    
    
    
    11,958Minority interest
    
    
    2
    
    
    
    107
    
    
    
    412
    
    
    
    239Income from continuing operations
    
    
    9,707
    
    
    
    5,345
    
    
    
    24,677
    
    
    
    12,197Discontinued operations, net of income taxes
    
    
    (43
    )
    
    
    (5
    )
    
    
    (833
    )
    
    
    (3
    )Net income
    
    $
    9,664
    
    
    $
    5,340
    
    
    $
    23,844
    
    
    $
    12,194Earnings (loss) per common share:Basic:Income from continuing operations
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.71
    
    
    $
    0.43Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.69
    
    
    $
    0.43Diluted:Income from continuing operations
    
    $
    0.25
    
    
    $
    0.17
    
    
    $
    0.68
    
    
    $
    0.43Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.25
    
    
    $
    0.17
    
    
    $
    0.66
    
    
    $
    0.43Weighted Average Common Shares Outstanding:Basic
    
    
    36,086,982
    
    
    
    31,613,959
    
    
    
    34,752,321
    
    
    
    28,099,006Diluted
    
    
    43,679,145
    
    
    
    31,890,886
    
    
    
    39,141,880
    
    
    
    28,570,460
  3




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2008 and 2007
 2008
    
    
    2007(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    23,844
    
    
    $
    12,194Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    9,127
    
    
    
    4,192Deferred income taxes
    
    
    587
    
    
    
    (806
    )Provision for doubtful accounts receivable
    
    
    1,051
    
    
    
    77Provision for loss on vendor advances
    
    
    1,486
    
    
    
    Financial instruments fair value adjustments
    
    
    (485
    )
    
    
    Loss on sale of property and equipment
    
    
    437
    
    
    
    208Minority interest in loss of consolidated subsidiary
    
    
    (412
    )
    
    
    (239
    )Equity in (earnings) loss of unconsolidated investee
    
    
    85
    
    
    
    Compensation expense on restricted stock, stock options and warrants issued
    
    
    1,377
    
    
    
    421Excess tax benefit from stock options
    
    
    (129
    )
    
    
    Change in assets and liabilities, net of acquisitions:(Increase) decrease in:Trade receivables
    
    
    (35,282
    )
    
    
    (20,658
    )Inventories
    
    
    7,511
    
    
    
    (11,054
    )Prepaid expenses and other
    
    
    96
    
    
    
    (1,779
    )Increase (decrease) in:Accounts payable, accrued expenses, and income taxes payable
    
    
    1,310
    
    
    
    4,177Net cash provided by (used in) used in operating activities
    
    
    10,603
    
    
    
    (13,267
    )Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    118
    
    
    
    23Purchase of property and equipment
    
    
    (9,280
    )
    
    
    (7,901
    )Change in cash restricted for investment
    
    
    1,871
    
    
    
    (6,112
    )Investments in unconsolidated subsidiary
    
    
    (600
    )
    
    
    (3,600
    )(Increase) decrease in other assets
    
    
    438
    
    
    
    1,258Cash paid for business acquisitions, less cash acquired
    
    
    (107,171
    )
    
    
    (76,289
    )Net cash used in investing activities
    
    
    (114,624
    )
    
    
    (92,621
    )Cash Flows from Financing ActivitiesSale of common stock
    
    
    28,497
    
    
    
    34,214Proceeds from issuance of subsidiary stock
    
    
    3,875
    
    
    
    3,613Net borrowings (payments) under revolving lines-of-credit
    
    
    (29,435
    )
    
    
    17,181Proceeds from other borrowings
    
    
    125,267
    
    
    
    57,034Proceeds from borrowings of subsidiary
    
    
    1,700
    
    
    
    Principal payments on other borrowings
    
    
    (6,045
    )
    
    
    (6,944
    )Excess tax benefit from stock-based compensation
    
    
    129
    
    
    
    57Debt issue costs
    
    
    (5,814
    )
    
    
    Proceeds from issuance of common stock on exercised warrants and options
    
    
    678
    
    
    
    654Net cash provided by financing activities
    
    
    118,852
    
    
    
    105,809Net increase (decrease) in cash and cash equivalents
    
    
    14,831
    
    
    
    (79
    )Cash and cash equivalents:Beginning
    
    
    3,309
    
    
    
    1,462Ending
    
    $
    18,140
    
    
    $
    1,383
  4




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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
   Disclosures about Derivative Instruments and Hedging Activities,
 Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active.
 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):
  Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedSeptember 30, 2007
    
    September 30, 2008
    
    September 30, 2007Revenues
    
    $
    130,337
    
    
    $
    809,274
    
    
    $
    308,197Net Income
    
    $
    6,746
    
    
    $
    32,366
    
    
    $
    16,357Earnings Per ShareBasic
    
    $
    0.21
    
    
    $
    0.93
    
    
    $
    0.57Diluted
    
    $
    0.19
    
    
    $
    0.83
    
    
    $
    0.53
 Business acquisition (scrap metal recycling segment):
 6




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##### Table of Contents



Three Months Ended
    
    Nine Months Ended
    
    Nine Months EndedSeptember 30, 2007
    
    September 30, 2008
    
    September 30, 2007Revenues
    
    $
    132,688
    
    
    $
    767,886
    
    
    $
    312,327Net Income
    
    $
    6,260
    
    
    $
    24,448
    
    
    $
    14,953Earnings Per ShareBasic
    
    $
    0.19
    
    
    $
    0.70
    
    
    $
    0.52Diluted
    
    $
    0.19
    
    
    $
    0.65
    
    
    $
    0.51
 Business acquisition (scrap metal recycling segment):
 Nine Months EndedSeptember 30, 2007Revenues
    
    $
    241,188Net Income
    
    $
    10,548Earnings Per ShareBasic
    
    $
    0.38Diluted
    
    $
    0.37
 Business acquisition (scrap metal recycling segment):
 7




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##### Table of Contents



Nine Months EndedSeptember 30, 2007Revenues
    
    $
    251,619Net Income
    
    $
    12,849Earnings Per ShareBasic
    
    $
    0.46Diluted
    
    $
    0.45
 Business acquisition (scrap metal recycling segment):
  Nine Months EndedSeptember 30, 2007Revenues
    
    $
    230,959Net Income
    
    $
    12,986Earnings Per ShareBasic
    
    $
    0.46Diluted
    
    $
    0.45
 8




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##### Table of Contents



Note 3
 Major Customer
  Net Revenues to Customer as a percentage of Total Revenues
    
    Trade Receivable Balance as ofThree Months
    
    Three Months
    
    Nine Months
    
    Nine MonthsEnded
    
    Ended
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    September 30,
    
    December 31,2008
    
    2007
    
    2008
    
    2007
    
    2008
    
    2007Customer A
    
    
    27
    %
    
    
    10
    %
    
    
    31
    %
    
    
    5
    %
    
    $
    7,925
    
    
    $
    5,550
 Note 4  Inventories
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    9,980
    
    
    $
    13,226Finished goods
    
    
    10,880
    
    
    
    12,704Work-in-process
    
    
    1,892
    
    
    
    7,216Ferrous scrap metal
    
    
    12,444
    
    
    
    5,427Non-ferrous scrap metal
    
    
    21,346
    
    
    
    10,975$
    56,542
    
    
    $
    49,548
 Note 5  Accrued Expenses and Other Liabilities
  September 30, 2008
    
    
    December 31, 2007Current
    
    
    Long-Term
    
    
    Total
    
    
    Current
    
    
    Long-Term
    
    
    TotalEnvironmental remediation costs
    
    $
    329
    
    
    $
    1,014
    
    
    $
    1,343
    
    
    $
    2,933
    
    
    $
    714
    
    
    $
    3,647Payroll and employee benefits
    
    
    3,344
    
    
    
    
    
    
    
    3,344
    
    
    
    2,699
    
    
    
    
    
    
    
    2,699Interest and bank fees
    
    
    2,239
    
    
    
    
    
    
    
    2,239
    
    
    
    971
    
    
    
    
    
    
    
    971Obligations under put options
    
    
    6,351
    
    
    
    
    
    
    
    6,351
    
    
    
    
    
    
    
    5,973
    
    
    
    5,973Obligations under share make-whole agreements
    
    
    2,775
    
    
    
    
    
    
    
    2,775
    
    
    
    
    
    
    
    
    
    
    
    Put warrant liability
    
    
    
    
    
    
    4,291
    
    
    
    4,291
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    7,379
    
    
    
    
    
    
    
    7,379
    
    
    
    1,802
    
    
    
    21
    
    
    
    1,823$
    22,417
    
    
    $
    5,305
    
    
    $
    27,722
    
    
    $
    8,405
    
    
    $
    6,708
    
    
    $
    15,113
 Note 6  Stock Options and Stock-Based Compensation
  9




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Note 7 Short and Long-Term Debt
     10




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##### Table of Contents



Periods Ending September 30:
    
    Amount2009
    
    $
    7,9342010
    
    
    4,1782011
    
    
    3,3142012
    
    
    2,8262013
    
    
    1,978Thereafter
    
    
    166,033$
    186,263
 Note 8  Stockholders Equity
    11




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Common
    
    
    Additional
    
    
    
    
    
    
    Other Comprehensive
    
    
    Total StockholdersStock
    
    
    Paid in Capital
    
    
    Retained Earnings
    
    
    Loss
    
    
    EquityBalance December 31, 2007
    
    $
    32
    
    
    $
    98,188
    
    
    $
    26,133
    
    
    $
    (336
    )
    
    $
    124,017Net Income
    
    
    
    
    
    
    
    
    
    
    23,844
    
    
    
    
    
    
    
    23,844Sale 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 acquisition
    
    
    1
    
    
    
    7,831
    
    
    
    
    
    
    
    
    
    
    
    7,832Issuance of 500,000 shares of
redeemable common stock for
acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of 174,203 shares of common
stock in exchange for options
exercised
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    
    
    
    
    678Issuance of 168,500 shares of
restricted common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    1,377
    
    
    
    
    
    
    
    
    
    
    
    1,377Gain on sale of subsidiary stock
    
    
    
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    501Unrealized loss on interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146
    )
    
    
    (146
    )Balance September 30, 2008
    
    $
    36
    
    
    $
    130,079
    
    
    $
    49,977
    
    
    $
    (482
    )
    
    $
    179,610
  Note 9  Financial Instruments Liabilities
 Accounting for
Certain Financial Instruments with Characteristics of Both
Liabilities and Equity
     12




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Note 10  Earnings Per Share
  Three Months Ended
    
    
    Three Months EndedSeptember 30, 2008
    
    
    September 30, 2007Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing
operations available to
common stockholders
    
    $
    9,707
    
    
    
    36,086,982
    
    
    $
    0.27
    
    
    $
    5,345
    
    
    
    31,613,959
    
    
    $
    0.17Effect of Dilutive SecuritiesCommon stock warrants
    
    
    13
    
    
    
    89,527
    
    
    
    
    
    
    
    
    
    
    
    143,423Options and rights
    
    
    
    
    
    
    359,779
    
    
    
    
    
    
    
    
    
    
    
    133,504Convertible notes
    
    
    1,085
    
    
    
    7,142,857
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing
operations available to
common stockholders plus
assumed conversions
    
    $
    10,805
    
    
    
    43,679,145
    
    
    $
    0.25
    
    
    $
    5,345
    
    
    
    31,890,886
    
    
    $
    0.17
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing
operations available to
common stockholders
    
    $
    24,677
    
    
    
    34,752,321
    
    
    $
    0.71
    
    
    $
    12,197
    
    
    
    28,099,006
    
    
    $
    0.43Effect of Dilutive SecuritiesCommon stock warrants
    
    
    21
    
    
    
    89,553
    
    
    
    
    
    
    
    
    
    
    
    172,460Options and rights
    
    
    
    
    
    
    415,752
    
    
    
    
    
    
    
    
    
    
    
    298,994Convertible notes
    
    
    1,808
    
    
    
    3,884,254
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing
operations available to
common stockholders plus
assumed conversions
    
    $
    26,506
    
    
    
    39,141,880
    
    
    $
    0.68
    
    
    $
    12,197
    
    
    
    28,570,460
    
    
    $
    0.43
 Note 11  Commitments and Contingencies
 Environmental Remediation Matters
    13




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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
  14




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##### Table of Contents



Note 12  Segment Reporting
  Scrap Metal
    
    Lead Fabrication
    
    CorporateRecycling
    
    and Recycling
    
    and Other
    
    ConsolidatedThree months ended September 30, 2008Revenues from external customers
    
    $
    265,390
    
    
    $
    22,653
    
    
    $
    
    
    
    $
    288,043Operating income (loss)
    
    
    6,202
    
    
    
    (1,178
    )
    
    
    1,725
    
    
    
    6,749Three months ended September 30, 2007Revenues from external customers
    
    $
    75,764
    
    
    $
    26,363
    
    
    $
    
    
    
    $
    102,127Operating income (loss)
    
    
    7,175
    
    
    
    5,045
    
    
    
    (1,757
    )
    
    
    10,463Nine months ended September 30, 2008Revenues from external customers
    
    $
    674,168
    
    
    $
    74,361
    
    
    $
    5,124
    
    
    $
    753,653Operating income (loss)
    
    
    54,045
    
    
    
    (1,928
    )
    
    
    (2,177
    )
    
    
    49,940Total assets
    
    
    346,143
    
    
    
    54,543
    
    
    
    34,297
    
    
    
    434,983Nine months ended September 30, 2007Revenues from external customers
    
    $
    151,815
    
    
    $
    68,829
    
    
    $
    
    
    
    $
    220,644Operating income (loss)
    
    
    15,662
    
    
    
    11,160
    
    
    
    (4,944
    )
    
    
    21,878Total assets
    
    
    185,616
    
    
    
    55,342
    
    
    
    21,411
    
    
    
    262,369
 Note 13  Income Taxes
  Note 14 Investment in Beacon Energy Holdings
    15




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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 assets.
    
    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 assets, or other inputs that are observable, either
directly or indirectly, for substantially the full term of the asset.
    
    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
    
    
    
    
    
    
    
    
    
    $
    4,291
    
    
    $
    4,291Obligations under make-whole agreements
    
    
    
    
    
    
    
    
    
    $
    2,775
    
    
    $
    2,775Interest rate swaps
    
    
    
    
    
    $
    315
    
    
    
    
    
    
    $
    315
        Note 16  Subsequent Event
  16




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17




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This Form 10-Q includes certain statements that may be deemed to be forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements
in this Form 10-Q which address activities, events or developments that 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
   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
  Contingencies
  RESULTS OF OPERATIONS
  19




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##### Table of Contents



RevenuesThree Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007($, pounds and tons in thousands)Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    154.7
    
    
    $
    82,953
    
    
    
    28.8
    
    
    
    92.0
    
    
    $
    26,502
    
    
    
    26.0
    
    
    
    386.2
    
    
    $
    197,091
    
    
    
    26.2
    
    
    
    190.4
    
    
    $
    50,984
    
    
    
    23.1Non-ferrous metals (lbs.)
    
    
    42,271
    
    
    
    57,320
    
    
    
    19.9
    
    
    
    24,833
    
    
    
    35,793
    
    
    
    35.0
    
    
    
    111,683
    
    
    
    154,510
    
    
    
    20.5
    
    
    
    61,089
    
    
    
    87,362
    
    
    
    39.5Platinum group metals (lbs.)
    
    
    3,182
    
    
    
    125,117
    
    
    
    43.4
    
    
    
    384
    
    
    
    13,469
    
    
    
    13.2
    
    
    
    7,271
    
    
    
    322,567
    
    
    
    42.8
    
    
    
    384
    
    
    
    13,469
    
    
    
    13.2Total Scrap Metal Recycling
    
    
    
    
    
    
    265,390
    
    
    
    92.1
    
    
    
    
    
    
    
    75,764
    
    
    
    74.2
    
    
    
    
    
    
    
    674,168
    
    
    
    89.5
    
    
    
    
    
    
    
    151,815
    
    
    
    68.8Lead Fabrication (lbs.)
    
    
    14,824
    
    
    
    22,653
    
    
    
    7.9
    
    
    
    15,806
    
    
    
    26,363
    
    
    
    25.8
    
    
    
    44,308
    
    
    
    74,361
    
    
    
    9.9
    
    
    
    49,341
    
    
    
    68,829
    
    
    
    31.2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,124
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    Total Revenue
    
    
    
    
    
    $
    288,043
    
    
    
    100.0
    
    
    
    
    
    
    $
    102,127
    
    
    
    100.0
    
    
    
    
    
    
    $
    753,653
    
    
    
    100.0
    
    
    
    
    
    
    $
    220,644
    
    
    
    100.0
  Average
    
    Average
    
    Average
    
    AverageFerrous
    
    Non-Ferrous
    
    PGM
    
    LeadFor the quarter ending:
    
    Price per ton
    
    Price per lb.
    
    Price per lb
    
    Price per lb.September 30, 2008
    
    $
    536
    
    
    $
    1.36
    
    
    $
    39.32
    
    
    $
    1.53June 30, 2008
    
    $
    555
    
    
    $
    1.41
    
    
    $
    50.51
    
    
    $
    1.73March 31, 2008
    
    $
    379
    
    
    $
    1.39
    
    
    $
    44.35
    
    
    $
    1.78December 31, 2007
    
    $
    278
    
    
    $
    1.55
    
    
    $
    33.57
    
    
    $
    1.98September 30, 2007
    
    $
    278
    
    
    $
    1.44
    
    
    $
    35.09
    
    
    $
    1.67June 30, 2007
    
    $
    246
    
    
    $
    1.50
    
    
    
    n\a
    
    
    $
    1.30March 31, 2007
    
    $
    252
    
    
    $
    1.33
    
    
    
    n\a
    
    
    $
    1.23
 Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
  Scrap Metal Recycling
 Ferrous Revenues
  Non-Ferrous Revenues
  20




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Platinum Group Metal Revenues
  Lead Fabrication
  Operating Expenses
  Selling, General, and Administrative
  Depreciation and Amortization
  Operating Income
  21




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##### Table of Contents



Financial and Other Income/(Expense)
 Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity
     Income Taxes
  Discontinued Operations
   Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
  22




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##### Table of Contents



Scrap Metal Recycling
 Ferrous Revenues
  Non-Ferrous Revenues
  Platinum Group Metal Revenues
  Lead Fabrication
  Operating Expenses
  Selling, General, and Administrative
  23




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##### Table of Contents



Depreciation and Amortization
  Operating Income
  Financial and Other Income/(Expense)
 Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
     Income Taxes
  24




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##### Table of Contents



Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
    Future Capital Requirements
  25




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##### Table of Contents



Other Matters
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  26




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##### Table of Contents



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.
   27




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##### Table of Contents



(b) Changes in internal controls over financial reporting.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
  
 Item 6. Exhibits.
  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
 28




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##### Table of Contents



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




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SIGNATURES
  METALICO, INC.
(Registrant)Date:  November 7, 2008
    By:
    /s/ CARLOS E. AGÜEROCarlos E. AgüeroChairman, President and Chief
Executive OfficerDate:  November 7, 2008
    By:
    /s/ ERIC W. FINLAYSONEric W. FinlaysonSenior Vice President and Chief
Financial Officer (Principal Financial
Officerand Principal Accounting
Officer) 30