##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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.
 (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
  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.
    
    
    2Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation.
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    27Item 4. Controls and Procedures.
    
    
    28PART IIItem 1. Legal Proceedings.
    
    
    29Item 1A. Risk Factors.
    
    
    29Item 6. Exhibits.
    
    
    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 June 30, 2010 and December 31, 2009
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)
    
    
    (Note 1)($ thousands, except par value)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    5,115
    
    
    $
    4,938Trade receivables, less allowance for doubtful accounts of $1,174 and; $1,187, respectively
    
    
    53,164
    
    
    
    30,977Inventories
    
    
    61,275
    
    
    
    52,614Prepaid expenses and other
    
    
    4,001
    
    
    
    4,333Income taxes receivable
    
    
    3,646
    
    
    
    7,105Deferred income taxes
    
    
    2,748
    
    
    
    2,753Total current assets
    
    
    129,949
    
    
    
    102,720Property and Equipment, net
    
    
    73,618
    
    
    
    75,253Goodwill
    
    
    69,301
    
    
    
    69,301Other Intangibles, net
    
    
    40,185
    
    
    
    41,602Other Assets, net
    
    
    6,618
    
    
    
    7,825$
    319,671
    
    
    $
    296,701LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesShort-term debt
    
    $
    6,897
    
    
    $
    Current maturities of other long-term debt
    
    
    4,273
    
    
    
    8,515Accounts payable
    
    
    18,549
    
    
    
    12,526Accrued expenses and other current liabilities
    
    
    7,090
    
    
    
    7,513Income taxes payable
    
    
    
    
    
    
    808Total current liabilities
    
    
    36,809
    
    
    
    29,362Long-Term LiabilitiesSenior unsecured convertible notes payable
    
    
    80,407
    
    
    
    80,374Other long-term debt, less current maturities
    
    
    35,570
    
    
    
    27,904Deferred income taxes
    
    
    3,285
    
    
    
    3,285Accrued expenses and other
    
    
    3,525
    
    
    
    5,519Total long-term liabilities
    
    
    122,787
    
    
    
    117,082Total liabilities
    
    
    159,596
    
    
    
    146,444Stockholders EquityCapital StockCommon, par value $0.001, authorized shares of 100,000,000; issued and outstanding
shares of 46,449,085 and 46,425,224, respectively
    
    
    46
    
    
    
    46Additional paid-in capital
    
    
    173,406
    
    
    
    171,892Accumulated deficit
    
    
    (13,040
    )
    
    
    (20,972
    )Accumulated other comprehensive loss
    
    
    (337
    )
    
    
    (709
    )160,075
    
    
    
    150,257$
    319,671
    
    
    $
    296,701
  2




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2010 and 2009
 Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)($ thousands, except per share data)Revenue
    
    $
    144,575
    
    
    $
    62,348
    
    
    $
    278,654
    
    
    $
    115,632Costs and expensesOperating expenses
    
    
    128,127
    
    
    
    50,880
    
    
    
    238,020
    
    
    
    94,353Selling, general, and administrative expenses
    
    
    6,464
    
    
    
    5,399
    
    
    
    13,645
    
    
    
    11,708Depreciation and amortization
    
    
    3,236
    
    
    
    3,307
    
    
    
    6,636
    
    
    
    6,594137,827
    
    
    
    59,586
    
    
    
    258,301
    
    
    
    112,655Operating income
    
    
    6,748
    
    
    
    2,762
    
    
    
    20,353
    
    
    
    2,977Financial and other income (expense)Interest expense
    
    
    (2,346
    )
    
    
    (4,402
    )
    
    
    (5,294
    )
    
    
    (8,805
    )Accelerated amortization and other costs related to
refinancing of senior debt
    
    
    
    
    
    
    
    
    
    
    (3,046
    )
    
    
    (254
    )Equity in loss of unconsolidated investee
    
    
    
    
    
    
    (287
    )
    
    
    
    
    
    
    (733
    )Financial instruments fair value adjustments
    
    
    2,063
    
    
    
    (1,504
    )
    
    
    1,115
    
    
    
    (2,034
    )Gain on debt extinguishment
    
    
    
    
    
    
    5,024
    
    
    
    
    
    
    
    5,024Other
    
    
    3
    
    
    
    34
    
    
    
    (87
    )
    
    
    187(280
    )
    
    
    (1,135
    )
    
    
    (7,312
    )
    
    
    (6,615
    )Income (loss) from continuing operations
before income taxes
    
    
    6,468
    
    
    
    1,627
    
    
    
    13,041
    
    
    
    (3,638
    )Provision (benefit) for federal and state income taxes
    
    
    2,045
    
    
    
    563
    
    
    
    5,099
    
    
    
    (993
    )Income (loss) from continuing operations
    
    
    4,423
    
    
    
    1,064
    
    
    
    7,942
    
    
    
    (2,645
    )Discontinued operations, net of income taxes
    
    
    (5
    )
    
    
    24
    
    
    
    (10
    )
    
    
    182Net income (loss)
    
    $
    4,418
    
    
    $
    1,088
    
    
    $
    7,932
    
    
    $
    (2,463
    )Earnings (loss) per common share:Basic:Income (loss) from continuing operations
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    0.17
    
    
    $
    (0.07
    )Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    0.17
    
    
    $
    (0.07
    )Diluted:Income (loss) from continuing operations
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    0.17
    
    
    $
    (0.07
    )Discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.10
    
    
    $
    0.03
    
    
    $
    0.17
    
    
    $
    (0.07
    )Weighted Average Common Shares Outstanding:Basic
    
    
    46,443,348
    
    
    
    38,295,781
    
    
    
    46,435,845
    
    
    
    37,367,007Diluted
    
    
    46,463,537
    
    
    
    38,354,045
    
    
    
    46,476,453
    
    
    
    37,367,007
  3




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##### Table of Contents



METALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2010 and 2009
 2010
    
    
    2009(Unaudited)($ thousands)Cash Flows from Operating ActivitiesNet income (loss)
    
    $
    7,932
    
    
    $
    (2,463
    )Adjustments to reconcile net income (loss) to net cash used in operating activities:Depreciation and amortization
    
    
    7,240
    
    
    
    7,326Deferred income tax provision (benefit)
    
    
    (221
    )
    
    
    (1,311
    )Change in provision for doubtful accounts receivable
    
    
    158
    
    
    
    (103
    )Provision for loss on vendor advances
    
    
    
    
    
    
    (204
    )Financial instruments fair value adjustments
    
    
    (1,115
    )
    
    
    2,034Gain on sale of property and equipment
    
    
    (187
    )
    
    
    (3
    )Gain on debt extinguishment
    
    
    
    
    
    
    (5,024
    )Equity in loss of unconsolidated investee
    
    
    
    
    
    
    733Stock-based compensation expense
    
    
    1,446
    
    
    
    1,178Deferred financing costs expensed
    
    
    2,107
    
    
    
    254Change in assets and liabilities:(Increase) decrease in:Trade receivables
    
    
    (22,345
    )
    
    
    (5,920
    )Inventories
    
    
    (8,661
    )
    
    
    (3,983
    )Income tax receivable prepaid expenses and other
    
    
    3,224
    
    
    
    7,465Increase (decrease) in:Accounts payable, accrued expenses, income taxes payable and other liabilities
    
    
    4,161
    
    
    
    (7,594
    )Net cash used in operating activities
    
    
    (6,261
    )
    
    
    (7,615
    )Cash Flows from Investing ActivitiesProceeds from sale of property and equipment
    
    
    500
    
    
    
    69Purchase of property and equipment
    
    
    (3,518
    )
    
    
    (1,116
    )(Increase) Decrease in other assets
    
    
    (11
    )
    
    
    3Net cash used in investing activities
    
    
    (3,029
    )
    
    
    (1,044
    )Cash Flows from Financing ActivitiesNet borrowings under revolving lines-of-credit
    
    
    3,854
    
    
    
    Proceeds from other borrowings
    
    
    8,736
    
    
    
    Principal payments on other borrowings
    
    
    (1,918
    )
    
    
    (22,712
    )Debt issue costs paid
    
    
    (1,273
    )
    
    
    (941
    )Proceeds from issuance of common stock on exercised warrants and options
    
    
    68
    
    
    
    10Net cash provided by (used in) financing activities
    
    
    9,467
    
    
    
    (23,643
    )Net increase (decrease) in cash and cash equivalents
    
    
    177
    
    
    
    (32,302
    )Cash and cash equivalents:Beginning of period
    
    
    4,938
    
    
    
    62,933Ending of period
    
    $
    5,115
    
    
    $
    30,631
  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
  5




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Note 2  Business Acquisitions
 Business acquisition (scrap metal recycling segment):
 Note 3  Major Customer
  Net sales to Customeras a percentage of Total Revenues
    
    
    Trade Receivable Balance as ofThree MonthsThree Months Ended
    
    
    Ended
    
    
    Six Months Ended
    
    
    Six Months Ended
    
    
    June 30,
    
    
    December 31,June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    2010
    
    
    2009Customer A
    
    
    25
    %
    
    
    13
    %
    
    
    23
    %
    
    
    12
    %
    
    $
    4,197
    
    
    $
    5,123
 Note 4  Inventories
  June 30,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    4,675
    
    
    $
    4,403Work-in-process
    
    
    3,157
    
    
    
    1,894Finished goods
    
    
    7,638
    
    
    
    6,935Ferrous scrap metal
    
    
    21,818
    
    
    
    15,655Non-ferrous scrap metal
    
    
    23,987
    
    
    
    23,727$
    61,275
    
    
    $
    52,614
 Note 5  Goodwill and Other Intangibles
   6




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##### Table of Contents



Gross
    
    
    
    
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    Impairment
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Charges
    
    
    AmountJune 30, 2010Covenants not-to-compete
    
    $
    4,310
    
    
    $
    (2,881
    )
    
    $
    
    
    
    $
    1,429Trademarks & tradenames
    
    
    6,075
    
    
    
    
    
    
    
    
    
    
    
    6,075Supplier relationships
    
    
    37,500
    
    
    
    (5,263
    )
    
    
    
    
    
    
    32,237Know how
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    397Patents & databases
    
    
    94
    
    
    
    (47
    )
    
    
    
    
    
    
    47$
    48,376
    
    
    $
    (8,191
    )
    
    $
    
    
    
    $
    40,185December 31, 2009Covenants not-to-compete
    
    $
    4,310
    
    
    $
    (2,540
    )
    
    $
    
    
    
    $
    1,770Trademarks & tradenames
    
    
    6,075
    
    
    
    
    
    
    
    
    
    
    
    6,075Customer relationships
    
    
    1,055
    
    
    
    (1,055
    )
    
    
    
    
    
    
    Supplier relationships
    
    
    37,500
    
    
    
    (4,203
    )
    
    
    
    
    
    
    33,297Know how
    
    
    397
    
    
    
    
    
    
    
    
    
    
    
    397Patents & 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
  June 30, 2010
    
    
    December 31, 2009Long-
    
    
    
    
    
    
    
    
    
    
    Long-Current
    
    
    Term
    
    
    Total
    
    
    Current
    
    
    Term
    
    
    TotalEnvironmental remediation costs
    
    $
    223
    
    
    $
    1,351
    
    
    $
    1,574
    
    
    $
    662
    
    
    $
    1,350
    
    
    $
    2,012Payroll and employee benefits
    
    
    3,772
    
    
    
    
    
    
    
    3,772
    
    
    
    2,232
    
    
    
    
    
    
    
    2,232Interest, bank fees and interest rate swap (See Note 8)
    
    
    1,133
    
    
    
    
    
    
    
    1,133
    
    
    
    1,401
    
    
    
    880
    
    
    
    2,281Obligations under make-whole agreements (see Note 16)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,204
    
    
    
    
    
    
    
    1,204Put warrant liability
    
    
    
    
    
    
    2,174
    
    
    
    2,174
    
    
    
    
    
    
    
    3,289
    
    
    
    3,289Other
    
    
    1,962
    
    
    
    
    
    
    
    1,962
    
    
    
    2,014
    
    
    
    
    
    
    
    2,014$
    7,090
    
    
    $
    3,525
    
    
    $
    10,615
    
    
    $
    7,513
    
    
    $
    5,519
    
    
    $
    13,032
 Note 7  Stock Options and Stock Based Compensation
   7




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Black-Scholes Valuation Assumptions (1)
    
    June 30, 2010Weighted average expected life (in years) (2)
    
    
    5.0Weighted average expected volatility (3)
    
    
    84.62
    %Weighted average risk free interest rates (4)
    
    
    2.48
    %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.  Number of
    
    
    Weighted AverageStock Options
    
    
    Exercise PriceOptions outstanding, beginning of period
    
    
    2,101,632
    
    
    $
    7.74Granted
    
    
    75,000
    
    
    $
    5.73Exercised
    
    
    (16,861
    )
    
    $
    3.94Forfeited or expired
    
    
    (197,444
    )
    
    $
    5.13Options outstanding, end of period
    
    
    1,962,327
    
    
    $
    7.95Options exercisable, end of period
    
    
    1,191,864
    
    
    $
    8.65
    Note 8  Short and Long-Term Debt
  8




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Covenant
    
    $
    9,331Actual
    
    $
    28,337
  Covenant
    
    $
    6,500Actual year to date
    
    $
    3,518
     9




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##### Table of Contents



Twelve months ending June 30:
    
    Amount2011
    $
    11,1702012
    
    
    3,7402013
    
    
    30,1902014
    
    
    4162015
    
    
    277Thereafter
    
    
    81,354$
    127,147
 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
    
    
    
    
    
    
    
    
    
    
    7,932
    
    
    
    
    
    
    
    7,932Issuance of 16,861 shares of common stock
in exchange for options exercised
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    68Stock-based compensation expense
    
    
    
    
    
    
    1,446
    
    
    
    
    
    
    
    
    
    
    
    1,446Termination of interest rate swap contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    372
    
    
    
    372Balance June 30, 2010
    
    $
    46
    
    
    $
    173,406
    
    
    $
    (13,040
    )
    
    $
    (337
    )
    
    $
    160,075
   Note 10  Statements of Cash Flows Information
  Six Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009Repayment of debt with new borrowings
    
    $
    44,109
    
    
    $
    Reduction of seller note payable on settlement of
final working capital receivable
    
    
    350
    
    
    
    Convertible notes exchanged for common stock
    
    
    
    
    
    
    15,075Issuance of common stock under make-whole agreement
    
    
    
    
    
    
    289
 10




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Note 11  Earnings Per Share
  Three Months Ended June 30, 2010
    
    
    Three Months Ended June 30, 2009Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome from continuing operations
    
    $
    4,423
    
    
    
    46,443,348
    
    
    $
    0.10
    
    
    $
    1,064
    
    
    
    38,295,781
    
    
    $
    0.03Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    20,189
    
    
    
    
    
    
    
    
    
    
    
    57,041Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,223Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing operations
    
    $
    4,423
    
    
    
    46,463,537
    
    
    $
    0.10
    
    
    $
    1,064
    
    
    
    38,354,045
    
    
    $
    0.03
  Six Months Ended June 30, 2010
    
    
    Six Months Ended June 30, 2009Income
    
    
    Shares
    
    
    Per Share
    
    
    Income
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    Amount
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSIncome (loss) from continuing operations
    
    $
    7,942
    
    
    
    46,435,845
    
    
    $
    0.17
    
    
    $
    (2,645
    )
    
    
    37,367,007
    
    
    $
    (0.07
    )Effect of Dilutive SecuritiesCommon stock warrants
    
    
    
    
    
    
    40,608
    
    
    
    
    
    
    
    
    
    
    
    Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome from continuing operations
    
    $
    7,942
    
    
    
    46,476,453
    
    
    $
    0.17
    
    
    $
    (2,645
    )
    
    
    37,367,007
    
    
    $
    (0.07
    )
  11




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Note 12  Commitments and Contingencies
 Environmental Remediation Matters
        Other Matters
  12




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##### Table of Contents



Note 13  Segment Reporting
  Scrap Metal
    
    
    
    
    
    
    CorporateRecycling
    
    
    Lead Fabricating
    
    
    and Other
    
    
    ConsolidatedThree months ended June 30, 2010Revenues from external customers
    
    $
    126,360
    
    
    $
    18,215
    
    
    $
    
    
    
    $
    144,575Operating income
    
    
    7,360
    
    
    
    (313
    )
    
    
    (299
    )
    
    
    6,748Three months ended June 30, 2009Revenues from external customers
    
    $
    44,321
    
    
    $
    18,027
    
    
    $
    
    
    
    $
    62,348Operating income (loss)
    
    
    479
    
    
    
    1,289
    
    
    
    994
    
    
    
    2,762Scrap Metal
    
    
    
    
    
    
    CorporateRecycling
    
    
    Lead Fabricating
    
    
    and Other
    
    
    ConsolidatedSix months ended June 30, 2010Revenues from external customers
    
    $
    246,244
    
    
    $
    32,410
    
    
    $
    
    
    
    $
    278,654Operating income (loss)
    
    
    21,287
    
    
    
    (404
    )
    
    
    (530
    )
    
    
    20,353Total assets
    
    
    266,534
    
    
    
    39,410
    
    
    
    13,727
    
    
    
    319,671Six months ended June 30, 2009Revenues from external customers
    
    $
    82,906
    
    
    $
    32,726
    
    
    $
    
    
    
    $
    115,632Operating income (loss)
    
    
    (352
    )
    
    
    1,533
    
    
    
    1,796
    
    
    
    2,977Total assets
    
    
    213,362
    
    
    
    40,278
    
    
    
    51,596
    
    
    
    305,236
 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).
  June 30, 2010Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalPut warrants
    
    
    
    
    
    
    
    
    
    $
    2,174
    
    
    $
    2,174
 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
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2010Put Warrants
    
    
    Put WarrantsBeginning balance
    
    $
    4,237
    
    
    $
    3,289Total (gains) or losses (realized/unrealized)Included in earnings
    
    
    (2,063
    )
    
    
    (1,115
    )Ending balance
    
    $
    2,174
    
    
    $
    2,174The 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.
    
    $
    2,063
    
    
    $
    1,115
 Three months ended June 30, 2009
    
    
    Six months ended June 30, 2009Obligation under
    
    
    
    
    
    
    
    
    
    
    Obligation undermake-whole
    
    
    
    
    
    
    
    
    
    
    make-wholePut Warrants
    
    
    agreements
    
    
    Total
    
    
    Put Warrants
    
    
    agreements
    
    
    TotalBeginning balance
    
    $
    582
    
    
    $
    2,442
    
    
    $
    3,024
    
    
    $
    412
    
    
    $
    3,546
    
    
    $
    3,958Purchases, issuances, and settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total (gains) or losses (realized/unrealized)Included in earnings
    
    
    2,464
    
    
    
    (960
    )
    
    
    1,504
    
    
    
    2,634
    
    
    
    (600
    )
    
    
    2,034Included in other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payments, conversions, redemptions and
additional issued shares
    
    
    
    
    
    
    (432
    )
    
    
    (432
    )
    
    
    
    
    
    
    (1,896
    )
    
    
    (1,896
    )Ending balance
    
    $
    3,046
    
    
    $
    1,050
    
    
    $
    4,096
    
    
    $
    3,046
    
    
    $
    1,050
    
    
    $
    4,096The 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.
    
    $
    2,464
    
    
    $
    (960
    )
    
    $
    1,504
    
    
    $
    2,634
    
    
    $
    (600
    )
    
    $
    2,034
 16




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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, 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 $144.6 million, compared to $62.3 million.
    
    Operating income was $6.7 million, compared to operating income of $2.8 million.
    
    Net income of $4.4 million, compared to a net income of $1.1 million.
    
    Net income of $0.10 per diluted share, compared to a net income of $0.03 per diluted share.
  
    
    Sales increased to $278.7 million, compared to $115.6 million.
    
    Operating income was $20.4 million, compared to operating income of $3.0 million.
    
    Net income of $7.9 million, compared to a net loss of $2.5 million.
    
    Net income of $0.17 per diluted share, compared to a net loss of $0.07 per share.
 Critical Accounting Policies and Use of Estimates
  17




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




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




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##### Table of Contents



RESULTS OF OPERATIONS
   RevenuesThree Months Ended
    
    
    Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009($s, and weights in thousands)Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    Net
    
    
    
    
    
    
    
    
    
    
    NetWeight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %
    
    
    Weight
    
    
    Sales
    
    
    %Scrap Metal RecyclingFerrous metals (tons)
    
    
    103.2
    
    
    $
    40,436
    
    
    
    28.0
    
    
    
    73.7
    
    
    $
    15,118
    
    
    
    24.3
    
    
    
    230.3
    
    
    $
    85,864
    
    
    
    30.8
    
    
    
    140.8
    
    
    $
    31,998
    
    
    
    27.7Non-ferrous metals (lbs.)
    
    
    36,102
    
    
    
    39,926
    
    
    
    27.6
    
    
    
    20,364
    
    
    
    16,838
    
    
    
    27.0
    
    
    
    72,115
    
    
    
    77,847
    
    
    
    28.0
    
    
    
    41,008
    
    
    
    30,957
    
    
    
    26.8Platinum group metals
(troy oz.)
    
    
    39.0
    
    
    
    45,998
    
    
    
    31.8
    
    
    
    14.7
    
    
    
    12,365
    
    
    
    19.8
    
    
    
    74.7
    
    
    
    82,533
    
    
    
    29.6
    
    
    
    26.4
    
    
    
    19,951
    
    
    
    17.2Total Scrap Metal Recycling
    
    
    
    
    
    
    126,360
    
    
    
    87.4
    
    
    
    
    
    
    
    44,321
    
    
    
    71.1
    
    
    
    
    
    
    
    246,244
    
    
    
    88.4
    
    
    
    
    
    
    
    82,906
    
    
    
    71.7Lead Fabricating (lbs.)
    
    
    12,845
    
    
    
    18,215
    
    
    
    12.6
    
    
    
    19,080
    
    
    
    18,027
    
    
    
    28.9
    
    
    
    22,597
    
    
    
    32,410
    
    
    
    11.6
    
    
    
    34,601
    
    
    
    32,726
    
    
    
    28.3Total Revenue
    
    
    
    
    
    $
    144,575
    
    
    
    100.0
    
    
    
    
    
    
    $
    62,348
    
    
    
    100.0
    
    
    
    
    
    
    $
    278,654
    
    
    
    100.0
    
    
    
    
    
    
    $
    115,632
    
    
    
    100.0
  Quarter ending September 30, 2009
    
    23.9Quarter ending December 31, 2009
    
    36.2
  AverageAverage
    
    
    Average
    
    
    PGM
    
    
    AverageFerrous
    
    
    Non-Ferrous
    
    
    Price per troy oz.
    
    
    LeadFor the quarter ended:
    
    Price per ton
    
    
    Price per lb.
    
    
    (1)
    
    
    Price per lb.June 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 June 30, 2010 Compared to Three Months Ended June 30, 2009
  20




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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




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##### Table of Contents



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




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##### Table of Contents



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




---



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Discontinued Operations
   LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
     25




---



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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




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##### 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.
   (b) Changes in internal controls over financial reporting.
 28




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##### Table of Contents



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:  August 5, 2010
    By:
    /s/ CARLOS E. AGÜEROCarlos E. AgüeroChairman, President and Chief
Executive OfficerDate:  August 5, 2010
    By:
    /s/ ERIC W. FINLAYSONEric W. FinlaysonSenior Vice President and Chief
Financial Officer
(Principal Financial  Officer
and Principal Accounting Officer) 30