##### 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, 2010
 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
    
    001-32453
    
    52-2169780(State or other jurisdiction of 
incorporation or organization)
    
    (Commission file number)
    
    (I.R.S. Employer Identification No.)186 North Avenue EastCranford, NJ
    
    07016
    
    (908) 497-9610(Address of Principal Executive Offices)
    
    (Zip Code)
    
    (Registrants Telephone Number)
 þ o
 o NO 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. Financial Statements.
        
    Page 2Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations.
        
    Page 17Item 3. Quantitative and Qualitative Disclosures About Market Risk.
        
    Page 27Item 4. Controls and Procedures.
        
    Page 28PART IIItem 1. Legal Proceedings.
        
    Page 29Item 1A. Risk Factors.
        
    Page 29Item 6. Exhibits.
        
    Page 29EX-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, 2010 and December 31, 2009
 September 30,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (Note 1)($ thousands, except par value)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    4,321
    
    
    $
    4,938Trade receivables, less allowance for doubtful accounts of $1,088 and $1,187, respectively
    
    
    59,336
    
    
    
    30,977Inventories
    
    
    61,179
    
    
    
    52,614Prepaid expenses and other
    
    
    4,345
    
    
    
    4,333Income taxes receivable
    
    
    1,946
    
    
    
    7,105Deferred income taxes
    
    
    2,748
    
    
    
    2,753Total current assets
    
    
    133,875
    
    
    
    102,720Property and Equipment, net
    
    
    72,136
    
    
    
    75,253Goodwill
    
    
    69,301
    
    
    
    69,301Other Intangibles, net
    
    
    39,481
    
    
    
    41,602Other Assets, net
    
    
    6,527
    
    
    
    7,825$
    321,320
    
    
    $
    296,701LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt
    
    $
    6,949
    
    
    $
    Current maturities of other long-term debt
    
    
    4,227
    
    
    
    8,515Accounts payable
    
    
    16,462
    
    
    
    12,526Accrued expenses and other current liabilities
    
    
    6,733
    
    
    
    7,513Income taxes payable
    
    
    
    
    
    
    808Total current liabilities
    
    
    34,371
    
    
    
    29,362Long-Term LiabilitiesSenior unsecured convertible notes payable
    
    
    79,923
    
    
    
    80,374Other long-term debt, less current maturities
    
    
    35,067
    
    
    
    27,904Deferred income taxes
    
    
    3,285
    
    
    
    3,285Accrued expenses and other
    
    
    3,417
    
    
    
    5,519Total long-term liabilities
    
    
    121,692
    
    
    
    117,082Total liabilities
    
    
    156,063
    
    
    
    146,444Stockholders EquityCapital StockCommon, par value $0.001, authorized shares of 100,000,000; issued and outstanding
shares of 46,451,085 and 46,425,224, respectively
    
    
    46
    
    
    
    46Additional paid-in capital
    
    
    174,095
    
    
    
    171,892Accumulated deficit
    
    
    (8,547
    )
    
    
    (20,972
    )Accumulated other comprehensive loss
    
    
    (337
    )
    
    
    (709
    )165,257
    
    
    
    150,257$
    321,320
    
    
    $
    296,701
  2




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2010 and 2009
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)($ thousands, except per share data)Revenue
    
    $
    136,956
    
    
    $
    91,480
    
    
    $
    415,610
    
    
    $
    207,112Costs and expensesOperating expenses
    
    
    118,161
    
    
    
    72,982
    
    
    
    356,181
    
    
    
    167,335Selling, general, and administrative expenses
    
    
    6,294
    
    
    
    7,578
    
    
    
    19,939
    
    
    
    19,286Depreciation and amortization
    
    
    3,450
    
    
    
    3,174
    
    
    
    10,086
    
    
    
    9,768Gain on insurance recovery
    
    
    (513
    )
    
    
    
    
    
    
    (513
    )
    
    
    127,392
    
    
    
    83,734
    
    
    
    385,693
    
    
    
    196,389Operating income
    
    
    9,564
    
    
    
    7,746
    
    
    
    29,917
    
    
    
    10,723Financial and other income (expense)Interest expense
    
    
    (2,243
    )
    
    
    (3,511
    )
    
    
    (7,537
    )
    
    
    (12,316
    )Accelerated amortization and other costs
related to refinancing of senior debt
    
    
    
    
    
    
    (288
    )
    
    
    (3,046
    )
    
    
    (542
    )Equity in loss of unconsolidated investee
    
    
    (2
    )
    
    
    (297
    )
    
    
    (2
    )
    
    
    (1,030
    )Financial instruments fair value adjustments
    
    
    107
    
    
    
    613
    
    
    
    1,222
    
    
    
    (1,421
    )Gain on debt extinguishment
    
    
    101
    
    
    
    3,048
    
    
    
    101
    
    
    
    8,072Other
    
    
    113
    
    
    
    2
    
    
    
    26
    
    
    
    189(1,924
    )
    
    
    (433
    )
    
    
    (9,236
    )
    
    
    (7,048
    )Income from continuing operations
before income taxes
    
    
    7,640
    
    
    
    7,313
    
    
    
    20,681
    
    
    
    3,675Provision for federal and state income taxes
    
    
    3,149
    
    
    
    2,254
    
    
    
    8,248
    
    
    
    1,261Income from continuing operations
    
    
    4,491
    
    
    
    5,059
    
    
    
    12,433
    
    
    
    2,414Discontinued operations, net of income taxes
    
    
    2
    
    
    
    (5
    )
    
    
    (8
    )
    
    
    177Net income
    
    $
    4,493
    
    
    $
    5,054
    
    
    $
    12,425
    
    
    $
    2,591Earnings per common share:Basic:Income from continuing operations
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.27
    
    
    $
    0.06Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Net income
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.27
    
    
    $
    0.07Diluted:Income from continuing operations
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.27
    
    
    $
    0.06Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Net income
    
    $
    0.10
    
    
    $
    0.12
    
    
    $
    0.27
    
    
    $
    0.07Weighted Average Common Shares Outstanding:Basic
    
    
    46,449,302
    
    
    
    43,534,362
    
    
    
    46,440,380
    
    
    
    39,445,479Diluted
    
    
    46,449,302
    
    
    
    43,534,362
    
    
    
    46,440,380
    
    
    
    39,502,013
  3




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2010 and 2009
 2010
    
    
    2009(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    12,425
    
    
    $
    2,591Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    10,924
    
    
    
    10,886Deferred income tax provision (benefit)
    
    
    (221
    )
    
    
    939Provision for doubtful accounts receivable
    
    
    350
    
    
    
    (103
    )Provision for loss on vendor advances
    
    
    
    
    
    
    (204
    )Financial instruments fair value adjustments
    
    
    (1,222
    )
    
    
    1,421Gain on
disposal of property and equipment
    
    
    (724
    )
    
    
    (147
    )Gain on debt extinguishment
    
    
    (101
    )
    
    
    (8,072
    )Equity in loss of unconsolidated investee
    
    
    2
    
    
    
    1,030Stock-based compensation expense
    
    
    2,129
    
    
    
    1,845Deferred financing costs expensed
    
    
    2,107
    
    
    
    542Change in assets and liabilities:(Increase) decrease in:Trade receivables
    
    
    (28,532
    )
    
    
    (18,677
    )Inventories
    
    
    (8,642
    )
    
    
    (9,301
    )Income tax receivable, prepaid expenses and other
    
    
    4,648
    
    
    
    9,022Increase (decrease) in:Accounts payable, accrued expenses, income taxes payable and other liabilities
    
    
    1,717
    
    
    
    (14,620
    )Net cash used in operating activities
    
    
    (5,140
    )
    
    
    (22,848
    )Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    617
    
    
    
    219Purchase of property and equipment
    
    
    (4,308
    )
    
    
    (1,612
    )Increase in other assets
    
    
    (384
    )
    
    
    (29
    )Net cash used in investing activities
    
    
    (4,075
    )
    
    
    (1,422
    )Cash Flows from Financing ActivitiesNet borrowings under revolving lines-of-credit
    
    
    4,114
    
    
    
    Proceeds from other borrowings
    
    
    9,068
    
    
    
    45Proceeds from sale of common stock
    
    
    
    
    
    
    24,799Principal payments on other borrowings
    
    
    (3,385
    )
    
    
    (50,193
    )Debt issue costs paid
    
    
    (1,273
    )
    
    
    (1,078
    )Proceeds from issuance of common stock on exercised warrants and options
    
    
    74
    
    
    
    13Net cash provided by (used in) financing activities
    
    
    8,598
    
    
    
    (26,414
    )Net decrease in cash and cash equivalents
    
    
    (617
    )
    
    
    (50,684
    )Cash and cash equivalents:Beginning of period
    
    
    4,938
    
    
    
    62,933Ending of period
    
    $
    4,321
    
    
    $
    12,249
  4




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ thousands, except per share data)
(Unaudited)
 Note 1  General
 Business
  Basis of Presentation
    Recent Accounting Pronouncements
  Note 2  Business Acquisitions
 Business acquisition (scrap metal recycling segment):
 5




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##### Table of Contents



Note 3  Major Customer
  Net sales to Customeras 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 31,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Customer A
    

    19%
    
    

    16%
    
    

    22%
    
    

    14%
    
    
    $
    3,832
    
    
    $
    5,123
 Note 4  Inventories
  September 30,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    6,587
    
    
    $
    4,403Work-in-process
    
    
    4,658
    
    
    
    1,894Finished goods
    
    
    3,021
    
    
    
    6,935Ferrous scrap metal
    
    
    21,987
    
    
    
    15,655Non-ferrous scrap metal
    
    
    24,926
    
    
    
    23,727$
    61,179
    
    
    $
    52,614
 Note 5  Goodwill and Other Intangibles
   Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    AmountSeptember 30, 2010Covenants not-to-compete
    
    $
    4,310
    
    
    $
    (3,047
    )
    
    $
    1,263Trademarks
and tradenames
    
    
    6,075
    
    
    
    
    
    
    
    6,075Supplier relationships
    
    
    37,500
    
    
    
    (5,793
    )
    
    
    31,707Know how
    
    
    397
    
    
    
    
    
    
    
    397Patents and databases
    
    
    94
    
    
    
    (55
    )
    
    
    39$
    48,376
    
    
    $
    (8,895
    )
    
    $
    39,481
 6




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##### Table of Contents



Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingAmount
    
    
    Amortization
    
    
    AmountDecember 31, 2009Covenants not-to-compete
    
    $
    4,310
    
    
    $
    (2,540
    )
    
    $
    1,770Trademarks
and tradenames
    
    
    6,075
    
    
    
    
    
    
    
    6,075Customer relationships
    
    
    1,055
    
    
    
    (1,055
    )
    
    
    Supplier relationships
    
    
    37,500
    
    
    
    (4,203
    )
    
    
    33,297Know how
    
    
    397
    
    
    
    
    
    
    
    397Patents and databases
    
    
    94
    
    
    
    (31
    )
    
    
    63$
    49,431
    
    
    $
    (7,829
    )
    
    $
    41,602
  Years Ending December 31:
    
    Amount2010
    
    $
    2,8582011
    
    
    2,5282012
    
    
    2,4642013
    
    
    2,4052014
    
    
    2,367Thereafter
    
    
    22,508$
    35,130
 Note 6  Accrued Expenses and Other Liabilities
  September 30, 2010
    
    
    December 31, 2009Current
    
    
    Long-Term
    
    
    Total
    
    
    Current
    
    
    Long-Term
    
    
    TotalEnvironmental remediation costs
    
    $
    218
    
    
    $
    1,350
    
    
    $
    1,568
    
    
    $
    662
    
    
    $
    1,350
    
    
    $
    2,012Payroll and employee benefits
    
    
    3,623
    
    
    
    
    
    
    
    3,623
    
    
    
    2,232
    
    
    
    
    
    
    
    2,232Interest, bank fees and interest rate swap (See Note 8)
    
    
    1,089
    
    
    
    
    
    
    
    1,089
    
    
    
    1,401
    
    
    
    880
    
    
    
    2,281Obligations
under make-whole agreements (see Notes
16 and 17)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,204
    
    
    
    
    
    
    
    1,204Put warrant liability
    
    
    
    
    
    
    2,067
    
    
    
    2,067
    
    
    
    
    
    
    
    3,289
    
    
    
    3,289Other
    
    
    1,803
    
    
    
    
    
    
    
    1,803
    
    
    
    2,014
    
    
    
    
    
    
    
    2,014$
    6,733
    
    
    $
    3,417
    
    
    $
    10,150
    
    
    $
    7,513
    
    
    $
    5,519
    
    
    $
    13,032
 Note 7  Stock Options and Stock Based Compensation
   Black-Scholes Valuation Assumptions (1)
    
    September 30, 2010
    
    
    September 30, 2009Weighted average expected life (in years) (2)
    
    
    5.0
    
    
    
    4.7Weighted average expected volatility (3)
    
    
    84.23
    %
    
    
    83.87
    %Weighted average risk free interest rates (4)
    
    
    1.59
    %
    
    
    2.51
    %Expected dividend yield
    
    
    
    
    
    
    
 
 (1)
    
    Forfeitures are estimated based on historical experience.(2)
    
    The expected life of stock options is estimated based on historical experience.(3)
    
    Expected volatility is based on the average of historical volatility. The
historical volatility is determined by observing actual prices of the Companys
stock over a period commensurate with the expected life of the awards.(4)
    
    Based on the U.S. Treasury constant maturity interest rate whose term is
consistent with the expected life of the stock options. 7




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##### Table of Contents



Number of
    
    
    Weighted AverageStock Options
    
    
    Exercise PriceOptions outstanding, beginning of period
    
    
    2,101,632
    
    
    $
    7.74Granted
    
    
    601,000
    
    
    
    3.79Exercised
    
    
    (18,861
    )
    
    
    3.85Forfeited or expired
    
    
    (216,569
    )
    
    
    5.46Options outstanding, end of period
    
    
    2,467,202
    
    
    
    7.00Options exercisable, end of period
    
    
    1,366,157
    
    
    $
    8.43
    Note 8  Short and Long-Term Debt
  8




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##### Table of Contents



Covenant
    
    1:1 to 1:0Actual
    
    
    2.3 to 1:0
  Covenant
    
    $
    6,500Actual year to date
    
    $
    4,308
    9




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##### Table of Contents



Twelve months ending September 30:
    
    Amount2011
    
    $
    11,1762012
    
    
    3,6952013
    
    
    29,6962014
    
    
    80,3802015
    
    
    309Thereafter
    
    
    910$
    126,166
 Note 9  Stockholders Equity
  Other
    
    
    TotalCommon
    
    
    Additional
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Paid-in Capital
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance December 31, 2009
    
    $
    46
    
    
    $
    171,892
    
    
    $
    (20,972
    )
    
    $
    (709
    )
    
    $
    150,257Net income
    
    
    
    
    
    
    
    
    
    
    12,425
    
    
    
    
    
    
    
    12,425Issuance of 18,861 shares of common stock
in exchange for options exercised
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    74Stock-based compensation expense
    
    
    
    
    
    
    2,129
    
    
    
    
    
    
    
    
    
    
    
    2,129Termination of interest rate swap contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372
    
    
    
    372Balance September 30, 2010
    
    $
    46
    
    
    $
    174,095
    
    
    $
    (8,547
    )
    
    $
    (337
    )
    
    $
    165,257
   10




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##### Table of Contents



Note 10  Statements of Cash Flows Information
  Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2010
    
    
    September 30, 2009Repayment of debt with new borrowings
    
    $
    44,109
    
    
    $
    Reduction of seller note payable on settlement of
final working capital receivable
    
    
    350
    
    
    
    Trade-in allowances on new equipment purchases
    
    
    504
    
    
    
    Convertible notes exchanged for common stock
    
    
    
    
    
    
    18,390Issuance of common stock under make-whole agreement
    
    
    
    
    
    
    289
  Note 11  Earnings Per Share
  Three Months Ended
    
    
    Three Months EndedSeptember 30, 2010
    
    
    September 30, 2009Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    4,491
    
    
    
    46,449,302
    
    
    $
    0.10
    
    
    $
    5,059
    
    
    
    43,534,362
    
    
    $
    0.12Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing operations
    
    $
    4,491
    
    
    
    46,449,302
    
    
    $
    0.10
    
    
    $
    5,059
    
    
    
    43,534,362
    
    
    $
    0.12
  Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    12,433
    
    
    
    46,440,380
    
    
    $
    0.27
    
    
    $
    2,414
    
    
    
    39,445,479
    
    
    $
    0.06Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,501Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,033Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing operations
    
    $
    12,433
    
    
    
    46,440,380
    
    
    $
    0.27
    
    
    $
    2,414
    
    
    
    39,502,013
    
    
    $
    0.06
  11




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##### Table of Contents



Note 12  Commitments and Contingencies
 Environmental Remediation Matters
        12




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##### Table of Contents



Other Matters
  Note 13  Segment Reporting
  Scrap Metal
    
    
    Lead
    
    
    CorporateRecycling
    
    
    Fabricating
    
    
    and Other
    
    
    ConsolidatedThree months ended September 30, 2010Revenues from external customers
    
    $
    120,296
    
    
    $
    16,660
    
    
    $
    
    
    
    $
    136,956Operating
income (loss)
    
    
    8,579
    
    
    
    1,084
    
    
    
    (99
    )
    
    
    9,564
 Three months ended September 30, 2009Revenues from external customers
    
    $
    74,281
    
    
    $
    17,199
    
    
    $
    
    
    
    $
    91,480Operating income (loss)
    
    
    7,794
    
    
    
    692
    
    
    
    (740
    )
    
    
    7,746
 Scrap Metal
    
    
    Lead
    
    
    CorporateRecycling
    
    
    Fabricating
    
    
    and Other
    
    
    ConsolidatedNine months ended September 30, 2010Revenues from external customers
    
    $
    366,540
    
    
    $
    49,070
    
    
    $
    
    
    
    $
    415,610Operating income (loss)
    
    
    29,866
    
    
    
    680
    
    
    
    (629
    )
    
    
    29,917Total assets
    
    
    271,663
    
    
    
    38,408
    
    
    
    11,249
    
    
    
    321,320
 Nine months ended September 30, 2009Revenues from external customers
    
    $
    157,187
    
    
    $
    49,925
    
    
    $
    
    
    
    $
    207,112Operating income
    
    
    7,469
    
    
    
    2,228
    
    
    
    1,026
    
    
    
    10,723Total assets
    
    
    231,168
    
    
    
    39,330
    
    
    
    26,844
    
    
    
    297,342
 Note 14  Income Taxes
  Note 15  Discontinued Operations
   13




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##### Table of Contents



Note 16  Financial Instruments Liabilities
    Note 17  Fair Value Disclosure
   Cash and cash equivalents, trade receivables, accounts payable and accrued liabilities:
 Notes payable and long-term debt:
 Interest Rate Swap:
 Put Warrants:
 Obligations under make-whole agreements:
   14




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##### Table of Contents




    
    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).
  September 30, 2010Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalPut warrants
    
    
    
    
    
    
    
    
    
    $
    2,067
    
    
    $
    2,067
 December 31, 2009Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalPut warrants
    
    
    
    
    
    
    
    
    
    $
    3,289
    
    
    $
    3,289Obligations under make-whole agreements
    
    $
    1,204
    
    
    
    
    
    
    $
    
    
    
    $
    1,204Interest rate swaps
    
    
    
    
    
    $
    880
    
    
    
    
    
    
    $
    880
  Put Warrants:
 Obligations under make-whole agreements:
 Interest Rate Swaps:
 15




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##### Table of Contents



Fair Value MeasurementsUsing Significant Unobservable Inputs(Level 3)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2010Put Warrants
    
    
    Put WarrantsBeginning balance
    
    $
    2,174
    
    
    $
    3,289Total (gains) or losses (realized/unrealized) included in earnings
    
    
    (107
    )
    
    
    (1,222
    )Ending balance
    
    $
    2,067
    
    
    $
    2,067The amount of gain for the period included
in earnings attributable to the change in
unrealized gains or losses relating to
liabilities still held at the reporting date
    
    $
    107
    
    
    $
    1,222
 Three months ended September 30, 2009
    
    
    Nine months ended September 30, 2009Obligation under
    
    
    
    
    
    
    
    
    
    
    Obligation undermake-whole
    
    
    
    
    
    
    
    
    
    
    make-wholePut Warrants
    
    
    agreements
    
    
    Total
    
    
    Put Warrants
    
    
    agreements
    
    
    TotalBeginning balance
    
    $
    3,046
    
    
    $
    1,050
    
    
    $
    4,096
    
    
    $
    412
    
    
    $
    3,546
    
    
    $
    3,958Purchases, issuances, and settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total (gains) or losses (realized/unrealized)Included in earnings
    
    
    (450
    )
    
    
    (163
    )
    
    
    (613
    )
    
    
    2,184
    
    
    
    (763
    )
    
    
    1,421Included in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments, conversions, redemptions and
additional issued shares
    
    
    
    
    
    
    ( 439
    )
    
    
    (439
    )
    
    
    
    
    
    
    (2,335
    )
    
    
    (2,335
    )Ending balance
    
    $
    2,596
    
    
    $
    448
    
    
    $
    3,044
    
    
    $
    2,596
    
    
    $
    448
    
    
    $
    3,044The amount of total (gains) or losses
included in earnings for the period
attributable to the change in unrealized
gains or losses relating to financial
instruments still held at the reporting date
    
    $
    (450
    )
    
    $
    (163
    )
    
    $
    (613
    )
    
    $
    2,184
    
    
    $
    (763
    )
    
    $
    1,421
 16




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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, 2009 (Annual Report), 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 2009 Annual Report. Amounts reported in the following discussions are
not reported in thousands unless otherwise specified.
 General
  Overview of Quarterly Results
  
    
    Sales increased to $137.0 million, compared to $91.5 million.
    
    Operating income increased to $9.6 million, compared to operating income of $7.7 million.
    
    Net income of $4.5 million, compared to a net income of $5.1 million.
    
    Net income of $0.10 per diluted share, compared to a net income of $0.12 per diluted share.
  
    
    Sales increased to $415.6 million, compared to $207.1 million.
    
    Operating income increased to $29.9 million, compared to operating income of $10.7 million.
    
    Net income of $12.4 million, compared to net income of $2.6 million.
    
    Net income of $0.27 per common and diluted share, compared to a net income of $0.07 per
common and diluted share.
 Critical Accounting Policies and Use of Estimates
  17




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##### Table of Contents



Revenue Recognition
  Accounts Receivable and Allowance for Uncollectible Accounts Receivable
   Derivatives and Hedging
   Goodwill
   18




---



##### Table of Contents



Valuation of Intangible and other Long-lived Assets
   Stock-based Compensation
  19




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##### Table of Contents



Income taxes
  RESULTS OF OPERATIONS
   RevenuesThree Months Ended
    
    
    Three Months Ended
    
    
    Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2010
    
    
    September 30, 2009
    
    
    September 30, 2010
    
    
    September 30, 2009($s, and weights in thousands)Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    119.7
    
    
    $
    43,483
    
    
    
    31.7
    
    
    
    105.3
    
    
    $
    28,307
    
    
    
    30.9
    
    
    
    350.0
    
    
    $
    129,347
    
    
    
    31.1
    
    
    
    246.1
    
    
    $
    60,305
    
    
    
    29.1Non-ferrous metals (lbs.)
    
    
    36,636
    
    
    
    43,798
    
    
    
    32.0
    
    
    
    27,305
    
    
    
    26,849
    
    
    
    29.4
    
    
    
    108,751
    
    
    
    121,645
    
    
    
    29.3
    
    
    
    68,313
    
    
    
    57,805
    
    
    
    27.9Platinum group metals
(troy oz.)
    
    
    31.4
    
    
    
    33,015
    
    
    
    24.1
    
    
    
    23.9
    
    
    
    19,125
    
    
    
    20.9
    
    
    
    108.0
    
    
    
    115,548
    
    
    
    27.8
    
    
    
    50.3
    
    
    
    39,077
    
    
    
    18.9Total Scrap Metal Recycling
    
    
    
    
    
    
    120,296
    
    
    
    87.8
    
    
    
    
    
    
    
    74,281
    
    
    
    81.2
    
    
    
    
    
    
    
    366,540
    
    
    
    88.2
    
    
    
    
    
    
    
    157,187
    
    
    
    75.9Lead Fabricating (lbs.)
    
    
    12,524
    
    
    
    16,660
    
    
    
    12.2
    
    
    
    14,699
    
    
    
    17,199
    
    
    
    18.8
    
    
    
    35,121
    
    
    
    49,070
    
    
    
    11.8
    
    
    
    49,301
    
    
    
    49,925
    
    
    
    24.1Total Revenue
    
    
    
    
    
    $
    136,956
    
    
    
    100.0
    
    
    
    
    
    
    $
    91,480
    
    
    
    100.0
    
    
    
    
    
    
    $
    415,610
    
    
    
    100.0
    
    
    
    
    
    
    $
    207,112
    
    
    
    100.0
   AverageAverage
    
    
    Average
    
    
    PGM
    
    
    AverageFerrous
    
    
    Non-Ferrous
    
    
    Price per troy oz.
    
    
    LeadFor the quarter ended:
    
    Price per ton
    
    
    Price per lb.
    
    
    (1)
    
    
    Price per lb.September 30, 2010
    
    $
    363
    
    
    $
    1.20
    
    
    $
    986
    
    
    $
    1.33June 30, 2010
    
    $
    392
    
    
    $
    1.11
    
    
    $
    1,122
    
    
    $
    1.42March 31, 2010
    
    $
    357
    
    
    $
    1.05
    
    
    $
    966
    
    
    $
    1.46December 31, 2009
    
    $
    292
    
    
    $
    0.92
    
    
    $
    801
    
    
    $
    1.39September 30, 2009
    
    $
    269
    
    
    $
    0.98
    
    
    $
    707
    
    
    $
    1.17June 30, 2009
    
    $
    205
    
    
    $
    0.83
    
    
    $
    661
    
    
    $
    0.94March 31, 2009
    
    $
    252
    
    
    $
    0.68
    
    
    $
    571
    
    
    $
    0.95
 
 (1)
    
    Average PGM prices are comprised of combined troy ounces of Platinum, Palladium and
Rhodium. Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
  20




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##### Table of Contents



Scrap Metal Recycling
 Ferrous Sales
  Non-Ferrous Sales
  Platinum Group Metals
  Lead Fabricating
  Operating Expenses
  Selling, General, and Administrative
  21




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##### Table of Contents



Depreciation and Amortization
  Operating Income
  Financial and Other Income(Expense)
     Income Taxes
  Discontinued Operations
  22




---



##### Table of Contents



Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
  Scrap Metal Recycling
 Ferrous Revenues
  Non-Ferrous Revenues
  Platinum Group Metals
  Lead Fabricating
  Operating Expenses
  23




---



##### Table of Contents



Selling, General, and Administrative
  Depreciation and Amortization
  Operating Income
  Financial and Other Income/(Expense)
      24




---



##### Table of Contents



Income Taxes
  Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
    25




---



##### Table of Contents



26




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##### Table of Contents



Future Capital Requirements
    Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  27




---



##### Table of Contents



Commodity price risk
  Foreign currency risk
  Common stock market price risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
 (a) Evaluation of disclosure controls and procedures.
   28




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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
  In order to maintain the supply line of catalytic converters for our PGM operations, we make
unsecured advances to vendors. A significant downturn in the price of platinum group metals could
result in the loss of a significant portion of those unsecured advances.
  
 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 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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##### Table of Contents



SIGNATURES
  METALICO, INC.
(Registrant)Date:  October 29, 2010
    By:
    /s/ CARLOS E. AGÜEROCarlos E. AgüeroChairman, President and Chief
Executive OfficerDate:  October 29, 2010
    By:
    /s/ ERIC W. FINLAYSONEric W. FinlaysonSenior Vice President and 
Chief Financial Officer 
(Principal Financial  Officer
and Principal Accounting Officer) 30