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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, 2007
 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.
 (Exact name of registrant as specified in its charter)
 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 EastCranford, 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 10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    Page 15Item 4.
    
    Controls and Procedures
    
    Page 16PART IIItem 1.
    
    Legal Proceedings
    
    Page 16Item 1A.
    
    Risk Factors
    
    Page 16Item 6.
    
    Exhibits
    
    Page 16
 1




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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, 2007 and December 31, 2006
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)($ thousands)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    813
    
    
    $
    1,462Trade receivables, net
    
    
    21,594
    
    
    
    19,530Inventories
    
    
    20,915
    
    
    
    20,489Prepaid expenses and other
    
    
    2,264
    
    
    
    1,771Deferred income taxes
    
    
    3,218
    
    
    
    2,715Total Current Assets
    
    
    48,804
    
    
    
    45,967Cash restricted for investment
    
    
    8,845
    
    
    
    8,891Property and Equipment, net
    
    
    30,290
    
    
    
    29,214Goodwill
    
    
    29,067
    
    
    
    29,067Other Intangibles and Other Assets, net
    
    
    6,043
    
    
    
    5,268Total Assets
    
    $
    123,049
    
    
    $
    118,407LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt
    
    $
    2,358
    
    
    $
    1,897Current maturities of other long-term debt
    
    
    3,574
    
    
    
    3,495Accounts payable
    
    
    9,719
    
    
    
    11,156Accrued expenses
    
    
    4,284
    
    
    
    4,117Income taxes payable
    
    
    3,373
    
    
    
    1,407Total Current Liabilities
    
    
    23,308
    
    
    
    22,072Long-Term LiabilitiesLong-term debt, less current maturities
    
    
    14,515
    
    
    
    13,110Accrued and other
    
    
    1,030
    
    
    
    1,054Deferred income taxes
    
    
    2,405
    
    
    
    3,732Total Long-Term Liabilities
    
    
    17,950
    
    
    
    17,896Total Liabilities
    
    
    41,258
    
    
    
    39,968Minority interest
    
    
    4,713
    
    
    
    4,726Stockholders EquityCapital StockPreferred
    
    
    32,861
    
    
    
    34,064Common
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    29,984
    
    
    
    28,524Retained earnings
    
    
    14,488
    
    
    
    11,380Accumulated other comprehensive income (loss)  unrecognized pension costs
    
    
    (267
    )
    
    
    (267
    )77,078
    
    
    
    73,713Total Liabilities and Stockholders Equity
    
    $
    123,049
    
    
    $
    118,407
  2




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METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2007 and 2006
 2007
    
    
    2006(Unaudited)($ thousands, except share data)Revenue
    
    $
    51,752
    
    
    $
    47,231Costs and expensesOperating expenses
    
    
    41,762
    
    
    
    38,337Selling, general, and administrative expenses
    
    
    3,699
    
    
    
    3,033Depreciation and amortization
    
    
    1,097
    
    
    
    95146,558
    
    
    
    42,321Operating income
    
    
    5,194
    
    
    
    4,910Financial and other income (expense)Interest expense
    
    
    (404
    )
    
    
    (596
    )Other
    
    
    108
    
    
    
    18(296
    )
    
    
    (578
    )Income from continuing operations before income taxes and minority interest
    
    
    4,898
    
    
    
    4,332Provision for federal and state income taxes
    
    
    1,766
    
    
    
    1,556Income from continuing operations before minority interest
    
    
    3,132
    
    
    
    2,776Minority interest
    
    
    36
    
    
    
    Income from continuing operations
    
    
    3,168
    
    
    
    2,776Discontinued operations, net
    
    
    (60
    )
    
    
    46Net income
    
    $
    3,108
    
    
    $
    2,822Earnings (loss) per common share:Basic:Income from continuing operations
    
    $
    0.12
    
    
    $
    0.12Discontinued operations, net
    
    
    
    
    
    
    Net income
    
    $
    0.12
    
    
    $
    0.12Diluted:Income from continuing operations
    
    $
    0.12
    
    
    $
    0.11Discontinued operations, net
    
    
    
    
    
    
    Net income
    
    $
    0.12
    
    
    $
    0.11Weighted Average Common Shares Outstanding:Basic
    
    
    26,131,752
    
    
    
    24,483,383Diluted
    
    
    26,438,340
    
    
    
    25,979,795
  3




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METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2007 and 2006
 2007
    
    
    2006(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    3,108
    
    
    $
    2,822Adjustments to reconcile net income to net cash (used in) provided by operating activities:Depreciation and amortization
    
    
    1,101
    
    
    
    1,111Amortization of notes payable discounts
    
    
    
    
    
    
    21Deferred income taxes
    
    
    (1,900
    )
    
    
    (30
    )Provision for doubtful accounts receivable
    
    
    10
    
    
    
    133Net gain on sale and disposal of property and equipment
    
    
    
    
    
    
    4Minority interest in loss of consolidated subsidiary
    
    
    (36
    )
    
    
    Compensation expense on stock options and warrants issued
    
    
    109
    
    
    
    86Change in assets and liabilities:(Increase) decrease in:Receivables
    
    
    (2,074
    )
    
    
    (2,172
    )Inventories
    
    
    (426
    )
    
    
    (2,685
    )Prepaid expenses and other
    
    
    (565
    )
    
    
    209Increase (decrease) in:Accounts payable, accrued expenses, and income taxes payable
    
    
    671
    
    
    
    2,103Net cash (used in) provided by operating activities
    
    
    (2
    )
    
    
    1,602Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    
    
    
    
    17Purchase of property and equipment
    
    
    (2,105
    )
    
    
    (1,519
    )(Increase) decrease in other assets
    
    
    (4
    )
    
    
    195Cash restricted for investment
    
    
    (725
    )
    
    
    Net cash used in investing activities
    
    
    (2,834
    )
    
    
    (1,307
    )Cash Flows from Financing ActivitiesNet borrowings (payments) under revolving lines-of-credit
    
    
    2,307
    
    
    
    (899
    )Proceeds from other borrowings
    
    
    392
    
    
    
    803Principal payments on other borrowings
    
    
    (754
    )
    
    
    (1,410
    )Proceeds from issuance of subsidiary stock
    
    
    225
    
    
    
    Proceeds from issuance of common stock on exercised warrants and options
    
    
    17
    
    
    
    Net cash (used in) provided by financing activities
    
    
    2,187
    
    
    
    (1,506
    )Net (decrease) increase in cash and cash equivalents
    
    
    (649
    )
    
    
    (1,211
    )Cash and cash equivalents:Beginning
    
    
    1,462
    
    
    
    1,857Ending
    
    $
    813
    
    
    $
    646
  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
   Significant Accounting Policies
 Incomes Taxes:
  Note 2  Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    8,776
    
    
    $
    8,495Finished goods and work in progress
    
    
    5,898
    
    
    
    5,096Ferrous scrap metal
    
    
    1,613
    
    
    
    1,722Non-ferrous scrap metal
    
    
    4,628
    
    
    
    5,176$
    20,915
    
    
    $
    20,489
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Note 3  Stock Options and Stock Based Compensation
  Note 4  Capital Stock
  Note 5  Earnings Per Share
  Three Months Ended March 31, 2007Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    3,168
    
    
    
    26,131,752
    
    
    $
    0.12Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    137,088Options and rights
    
    
    
    
    
    
    169,500Diluted EPSIncome from continuing
operations plus assumed
conversions
    
    $
    3,168
    
    
    
    26,438,340
    
    
    $
    0.12
 Three Months Ended March 31, 2006Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    2,776
    
    
    
    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
    
    $
    2,837
    
    
    
    25,979,795
    
    
    $
    0.11
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Note 6  Commitments and Contingencies
 Environmental Remediation Matters
      7




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Other Matters
   Note 7  Segment Reporting
  Scrap Metal
    
    Lead
    
    CorporateRecycling
    
    Fabrication
    
    and Other
    
    ConsolidatedMarch 31, 2007Revenues from external customers
    
    $
    33,137
    
    
    $
    18,615
    
    
    $
    
    
    
    $
    51,752Operating income (loss)
    
    
    4,015
    
    
    
    2,646
    
    
    
    (1,467
    )
    
    
    5,194Total assets
    
    
    63,260
    
    
    
    44,780
    
    
    
    15,009
    
    
    
    123,049
 March 31, 2006Revenues from external customers
    
    $
    27,488
    
    
    $
    19,743
    
    
    $
    
    
    
    $
    47,231Operating income (loss)
    
    
    3,918
    
    
    
    1,995
    
    
    
    (1,003
    )
    
    
    4,910Total assets
    
    
    55,131
    
    
    
    39,017
    
    
    
    10,860
    
    
    
    105,008
 Note 8  Income Taxes
  8




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Note 9  Discontinued Operations
   Three months endedMarch 31,2007
    
    2006Revenues
    
    
    
    
    
    
    3,477
  Note 10  Subsequent Events
  9




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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, 2006, 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, 2006 (Annual
Report).
 General
   Critical Accounting Policies
   Contingencies
  Valuation of Long-lived Assets and Goodwill
  10




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Revenue Recognition
  Accounts Receivable and Allowance for Uncollectible Accounts Receivable
   Inventory
  RESULTS OF OPERATIONS
   RevenuesMarch 31, 2007
    
    
    March 31, 2006($, pounds and tons in thousands)Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    46.3
    
    
    $
    11,657
    
    
    
    22.5
    
    
    
    48.3
    
    
    $
    11,420
    
    
    
    24.2Non-ferrous metals (lbs.)
    
    
    16,148
    
    
    
    21,480
    
    
    
    41.5
    
    
    
    17,826
    
    
    
    16,068
    
    
    
    34.0Total Scrap Metal Recycling
    
    
    
    
    
    
    33,137
    
    
    
    64.0
    
    
    
    
    
    
    
    27,488
    
    
    
    58.2Lead Fabrication (lbs.)
    
    
    15,123
    
    
    
    18,615
    
    
    
    36.0
    
    
    
    20,884
    
    
    
    19,743
    
    
    
    41.8Total Revenue
    
    
    
    
    
    $
    51,752
    
    
    
    100.0
    
    
    
    
    
    
    $
    47,231
    
    
    
    100.0
  11




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Average
    
    Average
    
    AverageFerrous
    
    Non-Ferrous
    
    LeadFor the quarter ending:
    
    Price per ton
    
    Price per lb.
    
    Price per lb.March 31, 2007
    
    $
    252
    
    
    $
    1.33
    
    
    $
    1.23December 31, 2006
    
    $
    190
    
    
    $
    1.25
    
    
    $
    1.15September 30, 2006
    
    $
    209
    
    
    $
    1.26
    
    
    $
    0.92June 30, 2006
    
    $
    240
    
    
    $
    1.17
    
    
    $
    0.96March 31, 2006
    
    $
    236
    
    
    $
    0.90
    
    
    $
    0.95
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
  Scrap Metal Recycling
 Ferrous Sales
  Non-Ferrous Sales
  Lead Fabrication
  Operating Expenses
  12




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Selling, General, and Administrative
  Depreciation and Amortization
  Operating Income
  Financial and Other Income/(Expense)
   Income Taxes
  Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
  13




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Future Capital Requirements
  AgriFuel Investment
   AgriFuel Co., Repurchase Obligation
  14




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Capital Expenditure Commitment
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest rate risk
  Commodity price risk
  Foreign currency risk
  15




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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
 Item 1. Legal Proceedings
   Item 1A. Risk Factors
  Item 6. Exhibits.
 16




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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
 17




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SIGNATURES
  METALICO, INC.(Registrant)Date: April 24, 2007
    
    By:
    
    /s/ CARLOS E. AGÜEROCarlos E. AgüeroChairman, President and Chief
Executive OfficerDate: April 24, 2007
    
    By:
    
    /s/ ERIC W. FINLAYSONEric W. FinlaysonSenior Vice President and ChiefFinancial Officer (Principal Financial
Officer and Principal Accounting Officer)
 18