##### 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 March 31, 2006
 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
    
    (Commission file number)
    
    (I.R.S. Employer Identification No.)incorporation or organization)186 North Avenue East
Cranford, NJ
    
    07016
    
    (908) 497-9610(Address of Principal Executive Offices)
    
    (Zip Code)
    
    (Registrants Telephone Number)
 þ o
 o o þ
 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 12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    Page 16Item 4.
    
    Controls and Procedures.
    
    Page 17PART IIItem 1.
    
    Legal Proceedings.
    
    Page 18Item 1A.
    
    Risk Factors.
    
    Page 18Item 6.
    
    Exhibits.
    
    Page 18Form of Amendment to Convertible NotesCertification of Chief Executive OfficerCertification of Chief Financial Officer1350 Certification of Chief Executive Officer1350 Certification of Chief Financial Officer
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PART I. FINANCIAL INFORMATION
 
 Item 1.
Unaudited Condensed Consolidated Financial Statements
 METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2006 and December 31, 2005
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)($ thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    646
    
    
    $
    1,857Trade receivables, net
    
    
    21,655
    
    
    
    19,616Inventories
    
    
    18,958
    
    
    
    16,273Prepaid expenses and other
    
    
    899
    
    
    
    1,108Deferred income taxes
    
    
    433
    
    
    
    358Total Current Assets
    
    
    42,591
    
    
    
    39,212Property and Equipment, net
    
    
    28,696
    
    
    
    28,178Goodwill
    
    
    29,067
    
    
    
    29,067Other Intangibles and Other Assets, net
    
    
    3,831
    
    
    
    4,157Property Actively Marketed for Sale, net
    
    
    823
    
    
    
    823Total Assets
    
    $
    105,008
    
    
    $
    101,437LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt due related parties
    
    $
    750
    
    
    $
    1,600Other short-term debt
    
    
    2,674
    
    
    
    2,854Current maturities of long-term debt due related parties
    
    
    1,024
    
    
    
    1,013Current maturities of other long-term debt
    
    
    5,789
    
    
    
    5,559Accounts payable
    
    
    9,741
    
    
    
    7,847Accrued expenses
    
    
    4,329
    
    
    
    4,308Income taxes payable
    
    
    860
    
    
    
    Total Current Liabilities
    
    
    25,167
    
    
    
    23,181Long-Term LiabilitiesOther long-term debt, less current maturities
    
    
    17,596
    
    
    
    18,292Accrued and other
    
    
    1,662
    
    
    
    1,662Deferred income taxes
    
    
    2,336
    
    
    
    2,291Total Long-Term Liabilities
    
    
    21,594
    
    
    
    22,245Total Liabilities
    
    
    46,761
    
    
    
    45,426Redeemable Common Stock
    
    
    
    
    
    
    1,000Stockholders EquityCapital StockPreferred
    
    
    39,132
    
    
    
    39,132Common
    
    
    8
    
    
    
    8Additional paid-in capital
    
    
    15,785
    
    
    
    15,371Retained earnings
    
    
    3,874
    
    
    
    1,052Accumulated other comprehensive income (loss)  unrecognized pension costs
    
    
    (552
    )
    
    
    (552
    )58,247
    
    
    
    55,011Total Liabilities and Stockholders Equity
    
    $
    105,008
    
    
    $
    101,437
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METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2006 and 2005
 2006
    
    
    2005(Unaudited)($ thousands, except share data)Revenue
    
    $
    50,708
    
    
    $
    40,852Costs and expensesOperating expenses
    
    
    41,369
    
    
    
    33,318Selling, general, and administrative expenses
    
    
    3,210
    
    
    
    3,154Depreciation and amortization
    
    
    1,090
    
    
    
    1,10145,669
    
    
    
    37,573Operating income
    
    
    5,039
    
    
    
    3,279Financial and other income (expense)Interest expense
    
    
    (597
    )
    
    
    (871
    )Other
    
    
    18
    
    
    
    14(579
    )
    
    
    (857
    )Income from continuing operations before income taxes
    
    
    4,460
    
    
    
    2,422Provision for federal and state income taxes
    
    
    1,605
    
    
    
    799Income from continuing operations
    
    
    2,855
    
    
    
    1,623Discontinued operations, net
    
    
    (33
    )
    
    
    (20
    )Net income
    
    $
    2,822
    
    
    $
    1,603Earnings (loss) per common share:Basic:Income from continuing operations
    
    $
    0.12
    
    
    $
    0.07Discontinued operations, net
    
    
    
    
    
    
    Net income
    
    $
    0.12
    
    
    $
    0.07Diluted:Income from continuing operations
    
    $
    0.11
    
    
    $
    0.07Discontinued operations, net
    
    
    
    
    
    
    Net income
    
    $
    0.11
    
    
    $
    0.07Weighted Average Common Shares Outstanding:Basic
    
    
    24,483,383
    
    
    
    23,105,311Diluted
    
    
    25,979,795
    
    
    
    26,084,039
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METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2006 and 2005
 2006
    
    
    2005(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    2,822
    
    
    $
    1,603Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,111
    
    
    
    1,145Amortization of notes payable discounts
    
    
    21
    
    
    
    261Deferred income taxes
    
    
    (30
    )
    
    
    646Provision for doubtful accounts receivable
    
    
    133
    
    
    
    Net gain on sale and disposal of property and equipment
    
    
    4
    
    
    
    Non-cash compensation and related charges
    
    
    86
    
    
    
    7Change in assets and liabilities, net of acquisitions:(Increase) decrease in:Receivables
    
    
    (2,172
    )
    
    
    162Inventories
    
    
    (2,685
    )
    
    
    163Prepaid expenses and other
    
    
    209
    
    
    
    90Increase (decrease) in:Accounts payable, accrued expenses, and income taxes payable
    
    
    2,103
    
    
    
    (1,246
    )Net cash provided by operating activities
    
    
    1,602
    
    
    
    2,831Cash Flows from Investing ActivitiesProceeds form sale of property and equipment
    
    
    17
    
    
    
    Purchase of property and equipment
    
    
    (1,519
    )
    
    
    (3,963
    )(Increase) decrease in other assets
    
    
    195
    
    
    
    (258
    )Cash paid for business acquisitions
    
    
    
    
    
    
    (40
    )Net cash used in investing activities
    
    
    (1,307
    )
    
    
    (4,261
    )Cash Flows from Financing ActivitiesNet payments under revolving lines-of-credit
    
    
    (899
    )
    
    
    (129
    )Proceeds from other borrowings
    
    
    803
    
    
    
    2,314Principal payments on other borrowings
    
    
    (1,410
    )
    
    
    (697
    )Net cash (used) provided by financing activities
    
    
    (1,506
    )
    
    
    1,488Net (decrease) increase in cash and cash equivalents
    
    
    (1,211
    )
    
    
    58Cash and cash equivalents:Beginning
    
    
    1,857
    
    
    
    734Ending
    
    $
    646
    
    
    $
    792
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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
   Note 2  Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    7,486
    
    
    $
    5,713Finished goods and work in progress
    
    
    4,041
    
    
    
    3,655Ferrous scrap metal
    
    
    2,181
    
    
    
    2,498Non-ferrous scrap metal
    
    
    5,250
    
    
    
    4,407$
    18,958
    
    
    $
    16,273
 Note 3  Short and Long-Term Debt
  Note 4  Stock Options and Stock Based Compensation
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WeightedAverageExerciseShares
    
    
    PriceOutstanding at December 31, 2005
    
    
    872,275
    
    
    $
    2.87Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited or Expired
    
    
    (20,000
    )
    
    $
    2.50Outstanding at March 31, 2006 (a)
    
    
    852,275
    
    
    $
    2.88Exercisable at March 31, 2006 (a)
    
    
    396,661
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Three MonthsEndedMarch 31, 2005Net IncomeAs Reported
    
    $
    1,603Pro Forma
    
    $
    1,591Earnings per share on income from continuing operations stockholdersAs ReportedBasic
    
    
    0.07Diluted
    
    
    0.07ProformaBasic
    
    
    0.07Diluted
    
    
    0.07
  Note 5  Earnings Per Share
  Three Months Ended March 31, 2006Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations.
    
    $
    2,855
    
    
    
    24,483,383
    
    
    $
    0.12Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    93,568Options and rights
    
    
    
    
    
    
    42,113Convertible notes
    
    
    61
    
    
    
    1,360,731Diluted EPSIncome from continuing operations
plus assumed conversions
    
    $
    2,916
    
    
    
    25,979,795
    
    
    $
    0.11
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Three Months Ended March 31, 2005Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    1,623
    
    
    
    23,105,311
    
    
    $
    0.07Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    89,763Options and rights
    
    
    
    
    
    
    159,345Convertible notes
    
    
    283
    
    
    
    2,729,620Diluted EPSIncome from continuing
operations plus assumed
conversions
    
    $
    1,906
    
    
    
    26,084,039
    
    
    $
    0.07
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Note 6  Commitments and Contingencies
 Environmental Remediation Matters
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Other Matters
  Note 7  Segment Reporting
  LeadScrap Metal
    
    Fabrication
    
    CorporateRecycling
    
    and Recycling
    
    and Other
    
    ConsolidatedMarch 31, 2006Revenues from external customers
    
    $
    27,488
    
    
    $
    23,220
    
    
    $
    
    
    
    $
    50,708Operating income (loss)
    
    
    3,918
    
    
    
    2,124
    
    
    
    (1,003
    )
    
    
    5,039Total assets
    
    
    55,131
    
    
    
    48,492
    
    
    
    1,385
    
    
    
    105,008
 March 31, 2005Revenues from external customers
    
    $
    21,942
    
    
    $
    18,910
    
    
    $
    
    
    
    $
    40,852Operating income (loss)
    
    
    2,230
    
    
    
    1,902
    
    
    
    (853
    )
    
    
    3,279Total assets
    
    
    47,321
    
    
    
    46,955
    
    
    
    800
    
    
    
    95,076
 Note 8  Subsequent Events
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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, 2005, 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, 2005 (Annual
Report).
 General
   Critical Accounting Policies
   Contingencies
  Valuation of Long-lived Assets and Goodwill
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Revenue Recognition
  Accounts Receivable and Allowance for Uncollectible Accounts Receivable
   Inventory
  RESULTS OF OPERATIONS
   RevenuesMarch 31, 2006
    
    
    March 31, 2005($, pounds and tons in thousands)Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    48.3
    
    
    $
    11,420
    
    
    
    22.5
    
    
    
    39.6
    
    
    $
    9,263
    
    
    
    22.7Non-ferrous metals (lbs.)
    
    
    17,826
    
    
    
    16,068
    
    
    
    31.7
    
    
    
    16,459
    
    
    
    12,679
    
    
    
    31.0Total Scrap Metal Recycling
    
    
    
    
    
    
    27,488
    
    
    
    54.2
    
    
    
    
    
    
    
    21,942
    
    
    
    53.7
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RevenuesMarch 31, 2006
    
    
    March 31, 2005($, pounds and tons in thousands)Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Lead Fabrication and RecyclingFabricating (lbs.)
    
    
    20,741
    
    
    
    19,719
    
    
    
    38.9
    
    
    
    18,844
    
    
    
    17,264
    
    
    
    42.2Smelting (lbs.)
    
    
    9,093
    
    
    
    3,501
    
    
    
    6.9
    
    
    
    6,430
    
    
    
    1,646
    
    
    
    4.1Total Lead Fabrication and Recycling
    
    
    29,834
    
    
    
    23,220
    
    
    
    45.8
    
    
    
    25,274
    
    
    
    18,910
    
    
    
    46.3Total Revenue
    
    
    
    
    
    $
    50,708
    
    
    
    100.0
    
    
    
    
    
    
    $
    40,852
    
    
    
    100.0
  Average
    
    Average
    
    AverageFerrous
    
    Non-Ferrous
    
    LeadFor the quarter ending:
    
    Price per ton
    
    Price per lb.
    
    Price per lb.March 31, 2006
    
    $
    236
    
    
    $
    0.90
    
    
    $
    0.78December 31, 2005
    
    $
    214
    
    
    $
    0.75
    
    
    $
    0.72September 30, 2005
    
    $
    196
    
    
    $
    0.75
    
    
    $
    0.70June 30, 2005
    
    $
    178
    
    
    $
    0.78
    
    
    $
    0.71March 31, 2005
    
    $
    234
    
    
    $
    0.77
    
    
    $
    0.75
 Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
  Scrap Metal Recycling
 Ferrous Sales
  Non-Ferrous Sales
  Lead Fabrication and Recycling
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Lead Fabrication
  Lead Smelting
  Operating Expenses
  Selling, General, and Administrative
  Depreciation and Amortization
  Operating Income
  Financial and Other Income/(Expense)
   Income Taxes
  15




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Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
    Future Capital Requirements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
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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.
  (b) Changes in internal controls over financial reporting.
  
 PART II. OTHER INFORMATION
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Item 1.
Legal Proceedings
  
 Item 1A.
Risk Factors
  
 Item 6.
Exhibits.
  10.17
    
    Form of Amendment, effective April 18, 2006, to Convertible Notes
dated as of November 18, 2004 and thereafter issued by Metalico,
Inc. as maker to various Noteholders31.1
    
    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
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SIGNATURES
  METALICO, INC.
(Registrant)Date: May 2, 2006
    
    By:
    
    /s/ CARLOS E. AGÜEROCarlos E. Agüero
          Chairman, President and Chief
          Executive OfficerDate: May 2, 2006
    
    By:
    
    /s/ ERIC W. FINLAYSONEric W. Finlayson
          Senior Vice President and Chief
          Financial Officer
          (Principal Financial Officer
          and Principal Accounting Officer)
 19