UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
001-32453
Metalico, Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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52-2169780
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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186 North Avenue East
Cranford, NJ
(Address of Principal
Executive Offices)
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07016
(Zip Code)
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(908) 497-9610
(Registrants Telephone
Number)
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Securities registered under Section 12(b) of the
Exchange Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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None
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None
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Securities registered under Section 12(g) of the
Exchange Act:
Common stock, $.001 par value per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of voting stock held by
non-affiliates of the registrant as of June 30, 2009, the
last business day of the registrants most recently
completed second fiscal quarter was $157,475,455.
Number of shares of Common stock, par value $.001, outstanding
as of March 10, 2010: 46,426,557
DOCUMENTS
INCORPORATED BY REFERENCE
NONE
METALICO,
INC.
FOR THE
YEAR ENDED DECEMBER 31, 2009
TABLE OF
CONTENTS
This document contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. These statements relate to future events or our
future financial performance, and are identified by words such
as may, will, should,
expect, scheduled, plan,
intend, anticipate, believe,
estimate, potential, or
continue or the negative of such terms or other
similar words. You should read these statements carefully
because they discuss our future expectations, and we believe
that it is important to communicate these expectations to our
investors. However, these statements are only anticipations.
Actual events or results may differ materially. In evaluating
these statements, you should specifically consider various
factors, including the factors discussed under Risk
Factors. These factors may cause our actual results to
differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance, or
achievements. Moreover, we do not assume any responsibility for
the accuracy and completeness of such statements in the future.
Subject to applicable law, we do not plan to update any of the
forward-looking statements after the date of this report to
conform such statements to actual results.
1
PART I
Metalico, Inc. (referred to in this
10-K Report
as the Company, Metalico,
we, us, our, and similar
terms) operates in two distinct business segments:
(a) scrap metal recycling (Scrap Metal
Recycling), and (b) lead metal product fabricating
(Lead Fabricating). The Companys operating
facilities as of December 31, 2009 included twenty-four
scrap metal recycling facilities located in Buffalo, Rochester,
Niagara Falls, Lackawanna, and Syracuse, New York, Akron,
Youngstown and Warren, Ohio, Newark, New Jersey, Buda and
Dallas, Texas, Gulfport, Mississippi, Pittsburgh, Brownsville,
Sharon, West Chester and Quarryville, Pennsylvania, and
Colliers, West Virginia; an aluminum de-ox plant located in
Syracuse, New York; and four lead product manufacturing and
fabricating plants located in Birmingham, Alabama, Healdsburg
and Ontario, California and Granite City, Illinois. The Company
markets a majority of its products on a national basis but
maintains several international customers.
Metalico, Inc. was originally organized as a Delaware
corporation in 1997. In 1999, the original Metalico was merged
into a Colorado corporation. Later that year, the surviving
Colorado corporation was merged into a newly organized Delaware
corporation named Metalico, Inc., which continues today as our
holding company. Our common stock began trading on the American
Stock Exchange (now known as NYSE Amex) on March 15, 2005
under the symbol MEA.
We maintain a small corporate team that sets our strategic goals
and overall strategy. We manage our operations on a
decentralized basis, allowing each subsidiary autonomy for its
purchasing and sales. The corporate team approves all
acquisitions and operating budgets, allocates capital to the
business units based upon expected returns and risk levels,
establishes succession plans, ensures operations maintain a
consistent level of quality, evaluates risk and holds the
management of each business unit accountable for the performance
of its respective business unit.
SUMMARY
OF BUSINESS
Scrap
Metal Recycling
We have concentrated on acquiring and successfully consolidating
scrap operations by initially acquiring companies to serve as
platforms into which subsequent acquisitions would be
integrated. We believe that through the integration of our
acquired businesses, we have enhanced our competitive position
and profitability of the operations because of broader
distribution channels, elimination of redundant functions,
greater utilization of operating assets, and improved managerial
and financial resources.
We continue to be one of the largest full-service metals
recyclers in upstate and Western New York, with nine recycling
facilities located in that regional market. We have resumed the
expansion of our regional markets by acquiring scrap processing
facilities in Youngstown and Warren, Ohio on December 8,
2009. The assets acquired at the Youngstown facility include a
Newell
80-104 auto
shredder. This acquisition complements our previous acquisition
in Pittsburgh, Pennsylvania acquired in May 2008 and Akron, Ohio
acquired in July 2007. Our operations primarily involve the
collection and processing of ferrous and non-ferrous metals. We
collect industrial and obsolete scrap metal, process it into
reusable forms and supply the recycled metals to our ultimate
consumers, including electric arc furnace mills, integrated
steel mills, foundries, secondary smelters, aluminum recyclers
and metal brokers. We acquire unprocessed scrap metals primarily
in our local and regional markets and sell to consumers
nationally and in Canada as well as to exporters and
international brokers. We are also able to supply quantities of
scrap aluminum to our aluminum recycling facility and scrap lead
to our lead fabricating subsidiaries. We believe that we provide
comprehensive product offerings of both ferrous and non-ferrous
scrap metals.
Our platform scrap facilities in upstate New York, Ohio and
Western Pennsylvania have ready access to highway and rail
transportation, a critical factor in our business. In the
Pittsburgh market, we have waterfront access with barge loading
and unloading capabilities. In addition to buying, processing
and selling ferrous and non-ferrous scrap metals, we manufacture
de-oxidizing aluminum (de-ox), a form of refined
aluminum, for the steel industry. In May 2007, we acquired
Tranzact Corporation, a recycler of molybdenum, tantalum and
tungsten scrap located in Quarryville, Pennsylvania. In July
2007, we acquired a majority interest in Totalcat Group, Inc., a
recycler and
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manufacturer of catalytic devices from which we obtain platinum,
palladium and rhodium, headquartered in Newark, New Jersey. In
January 2008, we acquired the assets of American Catcon, another
recycler of catalytic devices, in Buda and Dallas, Texas, and
Gulfport, Mississippi. In May 2008, we acquired Neville Metals,
Assad Iron and Metals, Inc., Neville Recycling LLC and Platt
Properties, LLC, an affiliated group of scrap metal recycling
operations headquartered in Western Pennsylvania with a
satellite yard in Colliers, West Virginia. These acquisitions
have demonstrated our strategy of diversifying our metal mix,
which we believe mitigates our exposure to volatile commodity
prices.
Our metal recycling business has collection and processing
facilities in the following locations:
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Location
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Number of Facilities
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Buffalo, New York
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2
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Niagara Falls, New York
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1
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Lackawanna, New York (Hamburg)
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1
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Rochester, New York
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3
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Syracuse, New York
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1
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Newark, New Jersey
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1
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Akron, Ohio
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1
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Youngstown, Ohio
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1
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Warren, Ohio
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1
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Quarryville, Pennsylvania
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1
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West Chester, Pennsylvania
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1
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Pittsburgh/Western Pennsylvania
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6
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Colliers, West Virginia
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1
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Buda, Texas
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1
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Dallas, Texas
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1
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Gulfport, Mississippi
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1
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Ferrous Scrap Industry. Our ferrous
(iron-based) products primarily include sheared and bundled
scrap metal and other scrap metal, such as turnings and
busheling and broken cast iron. We and others in our industry
anticipate that in the long-term, the demand for recycled
ferrous metals will increase due to the continuing
transformation of the worlds steel producers from virgin
iron ore-based blast furnaces to newer, technologically advanced
electric arc furnace mini-mills. The electric arc furnace
process, which primarily uses recycled metal compared with the
traditional steel-making process that uses significantly less
recycled metal, is more environmentally sound and energy
efficient. By recycling steel, scarce natural resources are
preserved and the need to disrupt the environment with the
mining of virgin iron ore is reduced. Further, when recycled
metal is used instead of iron ore for new steel production, air
and water pollution generated by the production process
decreases and energy demand is reduced.
Non-Ferrous Scrap Industry. We also sort,
process and package non-ferrous metals, which include aluminum,
copper, stainless steel, brass, nickel-based alloys and
high-temperature alloys, using similar techniques and through
application of our technologies. The geographic markets for
non-ferrous scrap tend to be larger than those for ferrous scrap
due to the higher unit selling prices of non-ferrous metals,
which justify the cost of shipping over greater distances.
Non-ferrous scrap is sold under multi-load commitments or on a
single-load spot basis, either mill-direct or through brokers,
to intermediate or end-users which include smelters, foundries
and aluminum sheet and ingot manufacturers. Secondary smelters,
utilizing processed non-ferrous scrap as raw material, can
produce non-ferrous metals at a lower cost than primary smelters
producing such metals from ore. This is due to the significant
savings in energy consumption, environmental compliance, and
labor costs enjoyed by the secondary smelters. These cost
advantages, and the long lead-time necessary to construct new
non-ferrous primary smelting facilities, have generally resulted
in sustained demand and strong prices for processed non-ferrous
scrap during periods of high demand for finished non-ferrous
metal products.
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Platinum Group Metal Scrap Industry. We
recycle the platinum group metals (PGMs), platinum,
palladium, and rhodium from the substrate material retrieved
from the recycling of catalytic converters. We had traditionally
purchased and processed catalytic converters at our existing
scrap facilities on a small scale and expanded into this
industry on a larger scale with the acquisitions of the Totalcat
Group in July 2007 and American Catcon in January 2008. The
scrap catalytic device collection market is highly fragmented
and characterized by a large number of suppliers dealing with a
wide range of volumes. Converters for recycling are obtained
worldwide from networks of auto dismantlers, scrap yards, parts
dealers, and manufacturers. The supply chain network has tended
to develop regionally because the economics of collecting and
distributing scrap converters to recyclers requires
transportation from local scrap yards, often in small batches.
Effective procurement is a key competitive strength and a
significant barrier to entry as it requires significant
knowledge and experience about the PGM loadings in different
types of catalytic devices. The purchase price for converters is
determined on the basis of PGM market prices and internal
estimates of the amount of PGMs in each converter purchased.
Once purchased, the converters are sorted and cut and the
substrate material is removed and shipped to several third-party
processors which remove the PGMs from the substrate material by
means of chemical and mechanical processes. We use forward sales
contracts with these substrate processors to hedge against the
possibility of extremely volatile metal prices.
Lead
Fabricating
Through four physical operations located in three states, we
consume approximately 60 million pounds of lead metal per
year that are utilized in more than one hundred different base
products. Our products are sold nationally into diverse
industries such as roofing, plumbing, radiation shielding,
electronic solders, ammunition, automotive, Department of
Defense contractors, and others.
Our Lead Fabricating segment has facilities in the following
locations:
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Birmingham, Alabama
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Granite City, Illinois
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Healdsburg, California
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Ontario, California
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Our sales are concentrated within four main product lines: sheet
lead, shot, extruded strip lead, and cast lead. Sheet lead is
produced in various sizes, thicknesses, and alloys based upon
customer requirements. Sheets are rolled to various thicknesses,
cut to customer specifications and shipped to roof flashing
manufacturers, fabricators of radiation shielding, sound
attenuation and roofing contractors and other users. Shot is
produced and sold nationwide primarily to the recreational
re-load market under the Lawrence and West Coast Shot brands. We
also sell shot to cartridge manufacturers and industrial
consumers. Shot is produced in several lead alloys and sizes.
Strip lead is produced in rolls of various widths and lengths.
Strip lead is used primarily in the roofing industry. Cast lead
is typically sold in pig, ingot, brick and rectangular form.
Extruded wire and bar are used in plumbing applications, stained
glass production, the electronics industry and the radiation
shielding industry. Extruded pipe is used in the plumbing and
roofing industries. Extruded products are available in flats,
rounds, stars, pipe, and custom designed configurations. Other
lead products include roof flashings, lead wool, anodes and
babbitt.
Business
Strategies
Our core business strategy is to grow our scrap metal recycling
business through acquisitions in existing, contiguous and new
markets, and enhance our position as a high quality producer of
recycled metal products through investments in
state-of-the-art
equipment and to improve operational density. Scrap metal
recycling represented approximately 78.6% and 88.4% of our
revenues for the years ended December 31, 2009 and 2008,
respectively. Our ferrous and non-ferrous scrap metal recycling
operations are the leading processors in their local markets. We
intend to continue focusing on increasing our position as one of
the largest recycled metals processors in our existing regional
markets and exploring growth opportunities in contiguous and new
geographic markets. In December 2009, we acquired two additional
scrap facilities in the Youngstown, Ohio area that included an
automobile shredder, further expanding our regional presence and
increasing our scrap processing capacity.
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In July 2007, we diversified our commodity base by entering the
platinum group metals recycling business through the acquisition
of the Totalcat Group with further expansion in January 2008
with the acquisition of American Catcon. In this highly
fragmented and competitive segment of the scrap industry, we
will look to increase our presence in PGM recycling through
internal growth and acquisition.
In May 2008, we acquired the assets of the Snyder Group, a group
of full service metals recycling companies in the Pittsburgh,
Pennsylvania area comprised of two platform facilities and four
feeder yards. Most notable to this acquisition was the addition
of a state of the art automobile shredder providing Metalico
with a strong platform to expand the volume and profitability of
the ferrous component of our business. We obtained a second
shredder in December 2009 when we acquired the assets of
Youngstown Iron & Metal, Inc. and its affiliates in
northeastern Ohio.
Metalico has grown its lead fabricating business to be the
largest non-battery lead fabricator in the U.S. This
business does not typically require significant capital
expenditures. We intend to improve cash flows and expand our
market share in this business primarily by continued focus on
operating efficiencies. In the last quarter of 2008, we
completed the installation of a lead rolling mill and plant
improvement that has improved productivity in our Birmingham,
Alabama plant. We continually seek to reduce our largest
operating expense, which is our raw material cost, by increasing
the number of our suppliers of scrap and refined lead and reduce
operating costs through further automation where appropriate. We
intend to reduce our other operating and administrative costs
through continued integration and further automation of the work
flow process at our Alabama-based fabricator. In addition, we
intend to grow this business through increased sales and
marketing efforts.
The following are some of our specific business strategies:
Improve operating density. We intend to
continue to improve operating density within our existing
geographic market. We look to concentrate our customer base by
marketing our range of services to existing and potential
customers and consumers as well as by supplementing the
activities in our existing platforms with complementary tuck-in
acquisitions where and as they may become available.
Expand scrap metal recycling. Through our
acquisition of Youngstown Iron & Metal, Inc., in
December 2009, we obtained our second auto-shredder. The
addition of this second shredder increases our scrap processing
capacity. We plan to continue leveraging our owned facilities
through strategic tuck-in acquisitions. We continue to pursue
further development to our auto-shredding capabilities, either
through an acquisition or internal development, in order to
better compete in that segment of the scrap metal recycling
industry. In addition, we intend to grow through sales and
marketing and explore select joint ventures with metal
processors and suppliers.
Complete value-creating acquisitions. Our
strategy is to target acquisition candidates we believe will
earn after-tax returns in excess of our cost of capital. In new
markets, we seek to identify and acquire platform businesses
that can provide market growth and consolidation opportunities.
With the recent economic downturn and the tight credit
conditions today for smaller, family owned companies, we are
finding realistically valued acquisition opportunities in
markets we target for expansion. However, we will be dependent
on tight capital markets that could make these acquisitions
difficult.
Capture benefits of integration. When we have
made acquisitions, we have historically sought to capture the
benefits of business integration whenever possible. For example,
the Youngstown operations will complement our Akron, Ohio scrap
operations only 50 miles west of Youngstown and our
Pittsburgh regional scrap operations are headquartered only
70 miles east of the new facilities. Youngstown should be
able to draw on our extensive network of scrap suppliers and
capital resources to greatly increase operating capacity and
utilization at the shredder and elsewhere in the operations.
Elsewhere, our aluminum smelting and recovery facility located
in Syracuse, New York has consumed many of the grades of
aluminum scrap that our other scrap yards process. This
relationship allows these subsidiaries to take advantage of
transportation efficiencies, avoid some of the processing costs
associated with preparing scrap for sale to third parties,
internalize pricing
mark-ups and
expand service to consumers. In addition, we believe we enjoy a
competitive advantage over non-vertically integrated lead
fabrication companies as a result of our refining capabilities
within our lead fabrication operations. Our Granite City,
Illinois plant has the ability to process and refine various
forms of scrap lead. Typically scrap lead can be purchased,
processed and refined for less cost than refined lead can be
purchased from existing suppliers. Our Granite City plant has
the
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capacity to supply Mayco with one-third of its refined lead
needs on a monthly basis, subject to cost and availability of
scrap lead. We also sell batteries to lead smelting operations
which in turn supply lead to Mayco through tolling arrangements.
Maximize operating efficiencies. Our goal is
to continue improving operating efficiency in both business
segments in order to maximize operating margins in our business.
We have made significant investments in property, plant and
equipment designed to make us a more efficient processor,
helping us to achieve economies of scale. For example, in 2008
in our Syracuse operations, we completed the extension of a rail
spur into the property that allows us to ship more metal, reach
new consumers and save freight cost. The lead rolling mill and
upgraded plant facilities in Birmingham, Alabama, our primary
lead production facility, has significantly increased the
plants overall efficiency, both in terms of manufacturing
costs and utility costs. The upgraded mill became operational in
the last quarter of 2008. We continue to invest in new equipment
and make improvements to enhance productivity and to protect the
environment such as installing oil water collectors/separators
in our scrap yards.
Mitigate commodity price risk. We strive to
maintain an appropriate sales mix of ferrous and non-ferrous
metal products to reduce commodity price risk. We believe that
in most economic environments, a diversified scrap metal
operation minimizes our exposure to fluctuations in any single
metal market. We enter into forward sales contracts with PGM
substrate processors to limit exposure to rapid and significant
fluctuations in platinum prices. Ferrous scrap metal recycling,
non-ferrous scrap metal recycling and PGM recycling represented
approximately 34.0%, 35.7% and 30.3%, respectively, of our scrap
metal revenue for the year ended December 31, 2009 as
compared to approximately 29.7%, 23.9% and 46.4%, respectively,
for the year ended December 31, 2008. Our non-ferrous sales
are spread over five primary metals groups: aluminum, red
metals, lead, high-temp alloys and noble metals group.
Rapidly turn inventory in order to minimize exposure to
commodity price risk and avoid speculation. We
consistently turn inventory in order to minimize exposure to
commodity price swings and maintain consistent cash flows.
SCRAP
METAL RECYCLING
Our recycling operations encompass buying, processing and
selling scrap metals. The principal forms in which scrap metals
are generated include industrial scrap and obsolete scrap.
Industrial scrap results as a by-product generated from residual
materials from metal product manufacturing processes. Obsolete
scrap consists primarily of residual metals from old or obsolete
consumer and industrial products such as doors and window
frames, appliances, plumbing fixtures, electrical supply
components, automobiles and demolition of structures.
Ferrous
Operations
Ferrous Scrap Purchasing. We purchase ferrous
scrap from two primary sources: (i) manufacturers who
generate steel and iron, known as prompt or industrial scrap;
and (ii) scrap dealers, peddlers, auto wreckers, demolition
firms, railroads and others who generate steel and iron scrap,
known as obsolete scrap. We also collect ferrous scrap from
sources other than those that are delivered directly to our
processing facilities by placing retrieval boxes at these
sources. In addition to these sources, we purchase, at auction
or through competitive bidding, obsolete steel and iron from
large industrial accounts. The primary factors that determine
prices are market demand, competitive bidding, and the
composition, quality, size, and quantity of the materials.
Ferrous Scrap Processing. We prepare ferrous
scrap metal for resale through a variety of methods including
sorting, torching, shearing, cutting, baling, briquetting,
breaking and shredding. We produce a number of differently sized
and shaped products depending upon consumer specifications and
market demand.
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Sorting. After purchasing ferrous scrap metal,
we inspect the material to determine how it can most efficiently
be processed to maximize profitability. In some instances, scrap
may be sorted and sold without further processing. We separate
scrap for further processing according to its size and
metallurgical composition by using conveyor systems,
crane-mounted electromagnets
and/or
grapples.
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Torching, Shearing or Cutting. Pieces of
oversized ferrous scrap, such as obsolete steel girders and used
drill pipes, which are too large for other processing, are cut
with hand-held acetylene torches, crane-mounted
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alligator shears or stationary guillotine shears. After being
reduced to specific lengths or sizes, the scrap is then sold and
shipped to those consumers who can accommodate larger materials
in their furnaces, such as mini-mills.
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Block Breaking. Obsolete automotive engine
blocks are broken into several reusable metal byproducts with
specialized machinery that eliminates a labor-intensive process
with capability to efficiently and profitably process large
volumes. The machinery also includes two oil/water separation
systems that partially recover energy from the process.
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Baling. We process light-gauge ferrous metals
such as clips and sheet iron, and by-products from industrial
manufacturing processes, such as stampings, clippings and excess
trimmings, by baling these materials into large, dense, uniform
blocks. We use cranes, front-end loaders and conveyors to feed
the metal into hydraulic presses, which compress the materials
into cubes at high pressure to achieve higher density for
transportation and handling efficiency.
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Breaking of Furnace Iron. We process cast iron
which includes blast cast iron, steel pit scrap, steel skulls
and beach iron. Large pieces of iron are broken down by the
impact of forged steel balls dropped from cranes. The fragments
are then sorted and screened according to size and iron content.
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Shredding. We process discarded consumer
products such as vehicles and large household appliances through
our shredder to separate ferrous and non-ferrous metals from
waste materials. Magnets extract shredded steel and other
ferrous materials while a conveyor system carries the remaining
non-ferrous metals and non-metallic waste for additional sorting
and grading. Shredded ferrous scrap is primarily sold to steel
mini-mills seeking a higher consistency of yield and production
flexibility that standard ferrous scrap does not offer.
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Ferrous Scrap Sales. We sell processed ferrous
scrap to end-users such as steel mini-mills, integrated steel
makers and foundries, and brokers who aggregate materials for
large consumers. Most of our consumers purchase processed
ferrous scrap according to a negotiated spot sales contract that
establishes the price and quantity purchased for the month. The
price at which we sell our ferrous scrap depends upon market
demand and competitive pricing, as well as quality and grade of
the scrap. In many cases, our selling price also includes the
cost of rail or truck transportation to the buyer. Ferrous scrap
is shipped via truck and rail transportation. Ferrous scrap
transported via truck is sold predominately to mills usually
located in Pennsylvania, New York and metropolitan Toronto
within eight hours of our recycling facilities. Ferrous scrap
transported via rail can be shipped anywhere in the continental
United States. Our recycling facilities ship primarily via rail
to consumers in Pennsylvania, Ohio, Illinois, and Indiana.
Ferrous scrap metal sales accounted for approximately 26.7% and
26.2% of revenue for the years ended December 31, 2009 and
2008, respectively. We believe our profitability may be enhanced
by our offering a broad product line to a diversified group of
scrap metal consumers. Our ferrous scrap sales are accomplished
through a calendar month sales program managed regionally.
Non-Ferrous
Operations
Non-Ferrous Scrap Purchasing. We purchase
non-ferrous scrap from three primary sources:
(i) manufacturers and other non-ferrous scrap sources who
generate waste aluminum, copper, stainless steel, brass,
nickel-based alloys, high-temperature alloys and other metals;
(ii) producers of electricity, telecommunication service
providers, aerospace, defense, and recycling companies that
generate obsolete scrap consisting primarily of copper wire,
titanium and high-temperature alloys and used aluminum beverage
cans; and (iii) peddlers who deliver directly to our
facilities material which they collect from a variety of
sources. We also collect non-ferrous scrap from sources other
than those that are delivered directly to our processing
facilities by placing re-usable retrieval boxes at the sources.
The boxes are subsequently transported to our processing
facilities usually by company owned trucks.
A number of factors can influence the continued availability of
non-ferrous scrap such as the level of manufacturing activity
and the quality of our supplier relationships. Consistent with
industry practice, we have certain long-standing supply
relationships which generally are not the subject of written
agreements.
7
Non-Ferrous Scrap Processing. We prepare
non-ferrous scrap metals, principally aluminum, stainless steel,
copper and brass for resale by sorting, shearing, wire
stripping, cutting, chopping, melting or baling.
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Sorting. Our sorting operations separate
non-ferrous scrap manually and are aided by conveyor systems and
front-end loaders. In addition, many non-ferrous metals are
identified and sorted by using grinders and spectrometers and by
torching. Our ability to identify metallurgical composition is
critical to maximizing margins and profitability. Due to the
high value of many non-ferrous metals, we can afford to utilize
more labor-intensive sorting techniques than are employed in our
ferrous operations. We sort non-ferrous scrap for further
processing and upgrading according to type, grade, size and
chemical composition. Throughout the sorting process, we
determine whether the material can be cost effectively processed
further and upgraded before being sold.
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Copper and Brass. Copper and brass scrap may
be processed in several ways. We sort copper predominantly by
hand according to grade, composition and size. We package copper
and brass scrap by baling, boxing and other repacking methods to
meet consumer specifications.
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Aluminum and Stainless Steel. We process
aluminum and stainless steel based on type of alloy and, where
necessary, size the pieces to consumer specifications. Large
pieces of aluminum or stainless steel are cut using
crane-mounted alligator shears and stationary guillotine shears
and are baled individually along with small stampings to produce
large bales of aluminum or stainless steel. We also recover
aluminum from consumer products such as vehicles and large
household appliances through our shredding operations. Smaller
pieces of aluminum and stainless steel are boxed individually
and repackaged to meet consumer specifications.
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Thermal Technology. The aluminum smelting and
recovery facility in Syracuse, New York uses a reverberatory
furnace for melting various forms of aluminum scrap providing
higher throughput expanded feedstock and greater recovery
efficiencies.
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Other Non-Ferrous Materials. We process other
non-ferrous metals using similar cutting, baling and repacking
techniques as are used to process copper and brass. Other
significant non-ferrous metals we process come from such sources
as molybdenum, tantalum, tungsten, titanium, brass and
high-temperature nickel-based alloys which are often hand sorted
to achieve maximum value.
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Non-Ferrous Scrap Sales. We sell processed
non-ferrous scrap to end-users such as specialty steelmakers,
foundries, aluminum sheet and ingot manufacturers, copper
refineries and smelters, and brass and bronze ingot
manufacturers. Prices for non-ferrous scrap are driven by demand
for finished non-ferrous metal goods and by the general level of
national and international economic activity, with prices
generally linked to quotations for primary metal on the London
Metal Exchange or COMEX Division of the New York Mercantile
Exchange. Suppliers and consumers of non-ferrous metals also use
these exchanges to hedge against metal price fluctuations by
buying or selling futures contracts. Most of our consumers
purchase processed non-ferrous scrap according to a negotiated
spot sales contract that establishes the price and quantity
purchased for the month. Non-ferrous scrap is shipped
predominately via third-party truck to consumers generally
located east of the Mississippi River. Excluding PGM material,
non-ferrous metal sales accounted for approximately 28.1% and
21.1% of our total revenue for the years ended December 31,
2009 and 2008, respectively. We do not use futures contracts to
hedge prices for our non-ferrous products.
Platinum
Group Metals Operations
Platinum Group Metal Purchasing. We generally
purchase catalytic converters from wholesale sources that
include local and regional core buyers and collectors.
Purchasing from wholesale sources provides the volume necessary
to produce enough substrate material to garner competitive
advantages. These wholesalers purchase converters from auto
dismantlers, service station and repair shops, auto shredders
and towing operators. The purchase price for converters is
determined on the basis of PGM market prices and internal
estimates of the amount of PGMs in each converter purchased. The
expansion of the recycling market has led to a series of
increasingly sophisticated players forming the catalytic device
recycling supply chain. Recycling business has tended to develop
regionally as the economics of collecting and distributing scrap
devices involves transportation from local scrap
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yards, often in small batches. We also occasionally buy
converters directly from primary sources when economically
feasible.
Platinum Group Metal Scrap Processing. We
recover the PGMs from scrap ceramic substrate automobile
catalytic converters, scrap metal substrate automotive catalysts
as well as from catalysts used in stationary and other
industrial applications. The converter substrate is recovered
from de-canning catalytic converters through the use of
hydraulic shears or other mechanical means. Once de-canned, the
converter substrate material is aggregated and shipped to
several third-party processors which remove the PGMs from the
substrate material by means of chemical and mechanical processes.
Platinum Group Metal Scrap Sales. PGM sales
are based on the volume and price of PGMs recovered from
processing catalytic converters and form the majority of the
revenues. The total PGM volumes recovered are subject to
retentions by smelters and we therefore only recognize the net
volumes on which its revenue is calculated. The value in PGM is
significant enough that it is even profitable to recover minute
particles of precious metal from the dust that ends up in the
recycling plants air handling system. Scrap steel from the
tail pipes of the exhaust sections as well as the metal casing
of the catalytic converters is sold as ferrous scrap and
generates revenues based on the market prices of steel. PGM
sales accounted for approximately 23.8% and 41.1% of our total
revenue for the years ended December 31, 2009 and 2008,
respectively. The Company uses forward sales contracts with its
material processing vendors to hedge against price fluctuations
for its PGM contained material.
Competition
The markets for scrap metals are highly competitive, both in the
purchase of raw scrap and the sale of processed scrap. We
compete to purchase raw scrap with numerous independent
recyclers and large public scrap processors as well as larger
and smaller scrap companies engaged only in collecting
industrial scrap. Many of these producers have substantially
greater financial, marketing and other resources. Successful
procurement of materials is determined primarily by the price
and promptness of payment for the raw scrap and the proximity of
the processing facility to the source of the unprocessed scrap.
We compete in a global market with regard to the sale of
processed scrap. Competition for sales of processed scrap is
based primarily on the price, quantity and quality of the scrap
metals, as well as the level of service provided in terms of
consistency of quality, reliability and timing of delivery. Our
competitive advantage derives from our ability to source and
process substantial volumes, deliver a broad product line to
consumers, transport the materials efficiently, and sell scrap
in regional, national and international markets and to provide
other value-added services to our suppliers and consumers.
We occasionally face competition for purchases of unprocessed
scrap from producers of steel products, such as integrated steel
mills and mini-mills that have vertically integrated their
current operations by entering the scrap metal recycling
business. Many of these producers have substantially greater
financial, marketing and other resources. Scrap metals
processors also face competition from substitutes for prepared
ferrous scrap, such as pre-reduced iron pellets, hot briquetted
iron, pig iron, iron carbide and other forms of processed iron.
The availability and cost of substitutes for ferrous scrap could
result in a decreased demand for processed ferrous scrap, which
could result in lower prices for such products.
9
LEAD
FABRICATION
Products
We manufacture a wide variety of lead-based products through our
sheet lead, shot, strip lead, and cast lead product lines. Our
products are sold nationally into diverse industries such as
roofing, plumbing, radiation shielding, electronic solders,
ammunition, automotive, Department of Defense contractors, and
others.
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Products
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Available Form
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Application
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Anodes
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Chunk; Oval; Flat; Round; Star
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Plating: Cathodic Protection;
Zinc/Copper Production
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Antimony Alloys
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Bar; Shot; Sheet Lead
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Foundry; Ammunition;
Construction
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Babbitt Alloys
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Bar; Ingot; Wire
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Bearing Assembly and Repair;
Capacitor Manufacturing
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Britannia Alloys
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Sheet; Strip
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Engraving Metal; Organ Pipe;
Gasket
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Came
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Extruded Channel
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Stained Glass Assembly and
Repair
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Hot Pour
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Liner
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Radiation Shielding
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Lead Alloys
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Bar; Ingot; Ribbon; Wire; Shot; Sheet; Type; Anode; Wood; Brick;
Pipe;
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Industrial Assembly and
Repair; Stained Glass;
Plumbing; Radiator; Babbitt;
Pewter; Reloading
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Lead Sheet
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Sheet; Roll; Plate; Roof Flashings; Brick
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Radiation Shielding; Sound
Attenuation; Roof flashing;
Storage Tanks; Shower Pans
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Pewter
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Bar; Ingot
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Casting; Forming
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Tin Alloys
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Bar; Ingot; Wire; Sheet; Anode; Ribbon
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Industrial Assembly and Repair
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Type Metals
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Bar; Ingot
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Work-holding Applications;
Corrosion Protection
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Manufacturing
Process
Lead Shot: Ingot or bulk lead is melted at the
top levels of shot towers and poured into steel sizing pans. The
molten lead drops several stories through the tower, forming a
sphere and hardening while in air and ultimately landing in a
water tank. After additional processing, lead shot that meets
specifications is sorted by size, polished, weighed and packaged
as finished product.
Sheet Lead: Ingot or bulk lead is melted and
alloying elements are added. After impurities are removed from
the surface, the molten lead is then poured into heated molds to
form various sized slabs. The slabs are rolled down into lead
sheet, strip, anodes, rolls and plates of desired thickness and
cut to size.
Extruded Product: Lead ingots in alloyed form
are melted and forced through a precast die providing final
shape. The cool, hardened product is then cut to the desired
length and its thickness is measured to ensure the product meets
specifications.
Cast Product: Lead ingots in alloyed forms are
melted and poured into precast molds. The cool hardened lead
product is trimmed or machined for final use.
Suppliers
We obtain refined lead through multi-month contracts and on
occasion on a spot market basis. Principal sources of refined
lead are domestic secondary lead smelters, imported primary lead
marketed by brokers and, to a lesser extent, domestic primary
lead smelters. We also generate refined lead by purchasing an
extensive variety of
10
scrap lead and refining it in our processing facilities.
Changing lead markets may impact the Companys ability to
secure the volume of raw materials needed at pricing considered
sustainable before driving consumers to consider substitute
products.
Sales,
Markets and Customers Served
We sell our lead fabrications nationally. Products are sold to
distributors, wholesalers, and the plumbing and building trades
and other consumers. We have stable, long-standing relationships
with many of our customers. We sell substantial volumes of lead
products used in home construction, such as lead flashings and
sheet, in many parts of the nation.
Our sales and marketing department consists of internal
salespeople who, in addition to sourcing leads for new business,
function in a customer service role, working with existing
customers. We also use independent sales representatives and
product marketing organizations throughout the country.
Competition
Our lead fabrication facilities compete against two fabricators
of similar products based in the Southwest who distribute
nationally and several smaller regional producers of similar
products. To a lesser extent, we also compete against products
imported from South America, Canada, Europe and Asia.
Seasonality
and other conditions
Both the Scrap Metal Recycling and Lead Fabricating segments of
our business generally experience seasonal slowness in the month
of July and winter months, as customers tend to reduce
production and inventories and winter weather impacts
construction and demolition activity. In addition, periodic
maintenance shutdowns or labor disruptions at our larger
customers may have an adverse impact on our operations. Our
operations can be adversely affected as well by protracted
periods of inclement weather or reduced levels of industrial
production, which may reduce the volume of material processed at
our facilities.
Employees
At March 1, 2010, we had 658 employees. 48 of our
employees located at our facility in Granite City, Illinois were
represented by the United Steelworkers of America and 19 of our
employees located at our scrap processing facility in Akron,
Ohio were represented by the Chicago and Midwest Joint Board,
formerly an affiliate of Unite Here. Our agreement with the
United Steelworkers of America expires on March 15, 2011
and our agreement with the Joint Board expires on June 25,
2011.
A strike or work stoppage could impact our ability to operate
the Granite City facility or the Akron facility. Our
profitability could be adversely affected if increased costs
associated with any future labor contracts are not recoverable
through productivity improvements, price increases or cost
reductions. We believe that we have good relations with our
employees.
Recent
Developments
On March 2, 2010, we entered into a Credit Agreement (the
Credit Agreement) with a syndicate of lenders led by
JPMorgan Chase Bank, N.A. The new three-year facility consists
of senior secured credit facilities in the aggregate amount of
$65 million, including a $57.0 million revolving line
of credit (the Revolver) and an $8.0 million
machinery and equipment term loan facility. The Revolver
provides for revolving loans which, in the aggregate, are not to
exceed the lesser of $57.0 million or a Borrowing
Base amount based on specified percentages of eligible
accounts receivable and inventory and bears interest at the
Base Rate (a rate determined by reference to the
prime rate) plus 1.25% or, at our election, the current LIBOR
rate plus 3.5%. The term loan bears interest at the Base Rate
plus 2% or, at our election, the current LIBOR rate plus 4.25%.
Under the Agreement, we will be subject to certain operating
covenants and will be restricted from, among other things,
paying cash dividends, repurchasing our common stock over
certain stated thresholds, and entering into certain
transactions without the prior consent of the lenders. In
addition, the Agreement contains certain financial covenants,
including
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minimum EBITDA, fixed charge coverage ratio, and capital
expenditure covenants. Obligations under the Agreement are
secured by substantially all of our assets other than real
property. The proceeds of the Agreement are to be used for
present and future acquisitions, working capital, and general
corporate purposes.
Upon the effectiveness of the Credit Agreement described in the
preceding paragraph, we terminated our Amended and Restated Loan
and Security Agreement with Wells Fargo Foothill, Inc. dated
July 3, 2007, as amended (the Loan Agreement)
and repaid outstanding indebtedness under the Loan Agreement in
the aggregate principal amount of approximately
$13.5 million. We also terminated our Financing Agreement
with Ableco Finance LLC dated July 3, 2007, as amended (the
Financing Agreement) and repaid outstanding
indebtedness under the Financing Agreement in the aggregate
principal amount of approximately $30.6 million.
Outstanding balances under the Loan Agreement and the Financing
Agreement were paid with borrowings under the Credit Agreement
and available cash.
Segment
reporting
See Note 20 to the Companys audited financial
statements for the year ended December 31, 2009, included
elsewhere in this report.
Available
Information
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission (the SEC). You may read and copy these
documents at the SECs Public Reference Room, which is
located at 100 F Street, NE, Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the SECs
Public Reference Room. In addition, the SEC maintains an
Internet website at
http://www.sec.gov
which contains reports, proxy and information statements and
other information regarding issuers that file electronically
with the SEC.
We make available at no cost on our website,
www.metalico.com, our reports to the SEC and any
amendments to those reports as soon as reasonably practicable
after we electronically file or furnish such reports to the SEC.
Interested parties should refer to the Investors link on the
home page of our website located at www.metalico.com.
Information contained on our website is not incorporated into
this report. In addition, our Code of Business Conduct and
Ethics and Insider Trading Policy, the charters for the Board of
Directors Audit Committee and Compensation Committee, and
the Boards Statement of Nominating Principles and
Procedures, all of which were adopted by our Board of Directors,
can be found on the Companys website through the Corporate
Governance link on the Investors page. We will provide these
governance documents in print to any stockholder who requests
them. Any amendment to, or waiver of, any provision of the Code
of Ethics and any waiver of the Code of Business Conduct and
Ethics for directors or executive officers will be disclosed on
our website under the Corporate Governance link.
Set forth below are risks that we believe are material to our
business operations. Additional risks and uncertainties not
known to us or that we currently deem immaterial may also impair
our business operations.
Prices
of commodities we own are volatile, which may adversely affect
our operating results and financial condition.
Although we seek to turn over our inventory of raw or processed
scrap metals as rapidly as possible, we are exposed to commodity
price risk during the period that we have title to products that
are held in inventory for processing
and/or
resale. Prices of commodities, including scrap metals, have been
extremely volatile and have declined significantly during the
current global economic crisis and we expect this volatility to
continue. Such volatility can be due to numerous factors beyond
our control, including:
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general domestic and global economic conditions, including metal
market conditions;
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competition;
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the financial condition of our major suppliers and consumers;
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the availability of imported finished metal products;
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international demand for U.S. scrap;
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the availability and relative pricing of scrap metal substitutes;
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import duties and tariffs;
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currency exchange rates; and
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domestic and international labor costs.
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Although we have historically attempted to raise the selling
prices of our lead fabricating and scrap recycling products in
response to an increasing price environment, competitive
conditions may limit our ability to pass on price increases to
our consumers. In addition, the current economic crisis has
impacted our ability to raise prices. In a decreasing price
environment, we may not have the ability to fully recoup the
cost of raw materials used in fabrication and raw scrap we
process and sell to our consumers.
The volatile nature of metal commodity prices makes it difficult
for us to predict future revenue trends as shifting
international and domestic demand can significantly impact the
prices of our products, supply and demand for our products and
effect anticipated future results. Most of our consumers
purchase processed non-ferrous scrap according to a negotiated
spot sales contract that establishes the price and quantity
purchased for the month. We use forward sales contracts with PGM
substrate processors to hedge against extremely volatile PGM
metal prices. In the event our hedging strategy is not
successful, our operating margins and operating results can be
materially and adversely affected. In addition, the volatility
of commodity prices, and the resulting unpredictability of
revenues and costs, can adversely and materially affect our
operating margins and other results of operations.
The
profitability of our scrap recycling operations depends, in
part, on the availability of an adequate source of
supply.
We depend on scrap for our operations and acquire our scrap
inventory from numerous sources. These suppliers generally are
not bound by long-term contracts and have no obligation to sell
scrap metals to us. In periods of low industry prices, suppliers
may elect to hold scrap waiting for higher prices. In addition,
the slowdown in industrial production and consumer consumption
in the U.S. during the current economic crisis has reduced
and is expected to continue to reduce the supply of scrap metal
available to us. If an adequate supply of scrap metal is not
available to us, we would be unable to recycle metals at desired
volumes and our results of operations and financial condition
would be materially and adversely affected.
The
cyclicality of our industry could negatively affect our sales
volume and revenues.
The operating results of the scrap metals recycling industry in
general, and our operations specifically, are highly cyclical in
nature. They tend to reflect and be amplified by general
economic conditions, both domestically and internationally.
Historically, in periods of national recession or periods of
slowing economic growth, the operating results of scrap metals
recycling companies have been materially and adversely affected.
For example, during recessions or periods of slowing economic
growth, the automobile and the construction industries typically
experience major cutbacks in production, resulting in decreased
demand for steel, copper and aluminum. As a result of the
current economic crisis in the United States and throughout the
world and major cutbacks in the automotive and construction
industries, we have experienced significant fluctuations in
supply, demand and pricing for our products, which has
materially and adversely affected our results of operations and
financial condition. Our ability to withstand the significant
economic downturn we are currently experiencing and those we may
encounter in the future will depend in part on our levels of
debt and equity capital, operating flexibility and access to
liquidity.
The
volatility of the import and export markets may adversely affect
our operating results and financial condition.
Our business may be adversely affected by increases in steel
imports into the United States which will generally have an
adverse impact on domestic steel production and a corresponding
adverse impact on the demand for scrap metals domestically. Our
operating results could also be negatively affected by
strengthening or
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weakening in the US dollar. US dollar weakness provides some
support to prices of commodities that are denominated in US
dollars but with large non-US consumption and cost bases. For
example, appreciation in the Chinese and Indian currencies have
increased marginal costs of aluminum and iron ore production,
thereby increasing the underlying cost basis for prices. Export
markets, including Asia and in particular China, are important
to the scrap metal recycling industry. Weakness in economic
conditions in Asia and in particular slowing growth in China,
could negatively affect us further.
The
volatility of lead pricing may impact our ability to sell
product.
Our lead fabricating facilities may be adversely impacted by
increases or decreases in lead pricing. Changing lead markets
may impact our ability to secure the volume of raw materials
needed at pricing considered sustainable before driving
consumers to substitute products. Disruptions in domestic or
foreign lead refining capacity could impact our ability to
secure enough raw materials to meet production requirements.
Increases in the cost of lead could reduce the demand for lead
products by making nonlead-bearing alternatives more cost
attractive. Continued economic weakness in the U.S. and
abroad will continue to negatively impact demand for our
products.
An
impairment in the carrying value of goodwill or other acquired
intangibles could negatively affect our operating results and
net worth.
The carrying value of goodwill represents the fair value of
acquired businesses in excess of identifiable assets and
liabilities as of the acquisition date. The carrying value of
other intangibles represents the fair value of trademarks, trade
names and other acquired intangibles as of the acquisition date.
Goodwill and other acquired intangibles expected to contribute
indefinitely to our cash flows are not amortized, but must be
evaluated by our management at least annually for impairment.
Events and conditions that could result in impairment include
changes in the industries in which we operate, as well as
competition, a significant product liability or environmental
claim, or other factors leading to reduction in forecasted sales
or profitability. At December 31, 2008, our market
capitalization did not exceed total shareholders equity,
which is one of many factors that are considered when
determining goodwill impairment, and it required us to incur a
significant charge for impairment. As such, we recorded an
impairment charge of $36.3 million to goodwill and
$22.8 million to other intangibles for the year ending
December 31, 2008. None of our goodwill or other
intangibles were impaired as of December 31, 2009. Going
forward, if, upon performance of an impairment assessment, it is
determined that such assets are impaired, additional impairment
charges may be recognized by reducing the carrying amount and
recording a charge against earnings. Should current economic and
equity market conditions deteriorate, it is possible that we
could have additional material impairment charges against
earnings in a future period.
Our
significant indebtedness may adversely affect our ability to
obtain additional funds and may increase our vulnerability to
economic or business downturns.
As of December 31, 2009, the total outstanding principal
amount of debt outstanding was $118.0 million, before debt
discount of $1.2 million related to our 7% convertible
notes and the application of cash and cash equivalents of
$4.9 million available for repayment of such indebtedness.
Subject to certain restrictions, exceptions and financial tests
set forth in certain of our debt instruments, we will incur
additional indebtedness in the future. After giving effect to
the new Credit Agreement as further described in Note 10 to
our financial statements, we anticipate our debt service payment
obligations during the next twelve months, to be approximately
$16.0 million, comprised of principal coming due within the
next twelve months of $8.5 million plus interest of
$7.5 million on our total debt outstanding. As of
December 31, 2009, approximately $30.6 million of our
debt accrued interest at variable rates. This same debt amount
would also be subject to variable interest rates under the new
Credit Agreement. We may experience material increases in our
interest expense as a result of increases in general interest
rate levels. Based on actual amounts outstanding as of
December 31, 2009 and giving effect to the new Credit
Agreement, if the interest rate on our variable rate debt were
to increase by 1%, our annual debt service payment obligations
would increase by $306,000. The degree to which we are leveraged
could have important negative consequences to the holders of our
securities, including the following:
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general domestic and global economic conditions, including metal
market conditions;
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a substantial portion of our cash flow from operations will be
needed to pay debt service and will not be available to fund
future operations;
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we have increased vulnerability to adverse general economic and
metals recycling industry conditions; and
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we may be vulnerable to higher interest rates because interest
expense on borrowings under our loan agreement is based on
margins over a variable base rate.
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From time to time, we have relied on borrowings under our credit
facility and from other lenders to acquire other businesses and
to operate our business. However, many financial institutions
have been adversely impacted by the current financial crisis
and, as a result, have ceased or reduced the amount of lending
they have made available to their customers. As a result, we may
have insufficient availability under our existing credit
facility or the ability to borrow from other lenders to acquire
additional businesses and to operate our business.
Our
indebtedness contains covenants that restrict our ability to
engage in certain transactions and failure to comply with the
terms of such indebtedness could result in a default that could
have material adverse consequences for us.
Under our Credit Agreement, we are required to satisfy specified
financial covenants, including minimum EBITDA, fixed charge
coverage ratio and capital expenditure covenants. Although we
are currently in compliance with the covenants and satisfy our
financial tests, we have in the past been in technical default
under certain of our prior loan facilities, all of which had
been waived. In addition, we have in the past adjusted covenants
contained in our prior loan facilities to protect against
noncompliance and prepaid some of our outstanding debt. Our
ability to comply with these specified financial covenants may
be affected by general economic and industry conditions, which
have continued to deteriorate, as well as market fluctuations in
metal prices and other events beyond our control. In particular,
due to current economic conditions, we do not know if we will be
able to satisfy all such covenants in the future. Our breach of
any of the covenants contained in agreements governing our
indebtedness, including our Credit Agreement, could result in a
default under such agreements. In the event of a default, a
lender could elect not to make additional loans to us, could
require us to repay some of our outstanding debt prior to
maturity,
and/or to
declare all amounts borrowed by us, together with accrued
interest, to be due and payable. In the event that this occurs,
we would likely be unable to repay all such accelerated
indebtedness.
We
have pledged substantially all of our assets to secure our
borrowings and are subject to covenants that may restrict our
ability to operate our business.
Any indebtedness that we incur under our existing Credit
Agreement is secured by substantially all of our assets other
than real estate, which is subject to a negative pledge. If we
default under the indebtedness secured by our assets, those
assets would be available to the secured creditors to satisfy
our obligations to the secured creditors.
We may
not generate sufficient cash flow to service all of our debt
obligations.
Our ability to make payments on our indebtedness and to fund our
operations depends on our ability to generate cash in the
future. Our future operating performance is subject to market
conditions and business factors that are beyond our control,
including the current economic crisis which has had a
significant adverse effect on our operating performance. We
might not be able to generate sufficient cash flow to pay the
principal and interest on our debt. If our cash flows and
capital resources are insufficient to allow us to make scheduled
payments on our debt, we may have to reduce or delay capital
expenditures, sell assets, seek additional capital or
restructure or refinance our debt. The terms of our debt,
including the security interests granted to our lenders, might
not allow for these alternative measures, and such measures
might not satisfy our scheduled debt service obligations. In
addition, in the event that we are required to dispose of
material assets or restructure or refinance our debt to meet our
debt obligations, we cannot assure you as to the terms of any
such transaction or how quickly such transaction could be
completed.
15
We may
seek to make acquisitions that may prove unsuccessful or strain
or divert our resources.
We continuously evaluate potential acquisitions. We may not be
able to complete any acquisitions on favorable terms or at all.
Acquisitions present risks that could materially and adversely
affect our business and financial performance, including:
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the diversion of our managements attention from our
everyday business activities;
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the contingent and latent risks associated with the past
operations of, and other unanticipated problems arising in, the
acquired business, including managing such acquired businesses
either through our senior management team or the management of
such acquired business; and
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the need to expand management, administration, and operational
systems.
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If we make such acquisitions we cannot predict whether:
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we will be able to successfully integrate the operations and
personnel of any new businesses into our business;
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we will realize any anticipated benefits of completed
acquisitions; or
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there will be substantial unanticipated costs associated with
acquisitions, including potential costs associated with
environmental liabilities undiscovered at the time of
acquisition.
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In addition, future acquisitions by us may result in:
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potentially dilutive issuances of our equity securities;
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the incurrence of additional debt;
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restructuring charges; and
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the recognition of significant charges for depreciation and
amortization related to intangible assets.
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We may in the future make investments in or acquire companies or
commence operations in businesses and industries that are
outside of those areas that we have operated historically. We
cannot assure that we will be successful in managing any new
business. If these investments, acquisitions or arrangements are
not successful, our earnings could be materially adversely
affected by increased expenses and decreased revenues.
The
markets in which we operate are highly competitive. Competitive
pressures from existing and new companies could have a material
adverse effect on our financial condition and results of
operations.
The markets for scrap metal are highly competitive, both in the
purchase of raw scrap and the sale of processed scrap. We
compete to purchase raw scrap with numerous independent
recyclers, large public scrap processors and smaller scrap
companies. Successful procurement of materials is determined
primarily by the price and promptness of payment for the raw
scrap and the proximity of the processing facility to the source
of the unprocessed scrap. We occasionally face competition for
purchases of unprocessed scrap from producers of steel products,
such as integrated steel mills and mini-mills, which have
vertically integrated their operations by entering the scrap
metal recycling business. Many of these producers have
substantially greater financial, marketing and other resources.
If we are unable to compete with these other companies in
procuring raw scrap, our operating costs could increase.
We compete in a global market with regard to the sale of
processed scrap. Competition for sales of processed scrap is
based primarily on the price, quantity and quality of the scrap
metals, as well as the level of service provided in terms of
consistency of quality, reliability and timing of delivery. To
the extent that one or more of our competitors becomes more
successful with respect to any key factor, our ability to
attract and retain consumers could be materially and adversely
affected. Our scrap metal processing operations also face
competition from substitutes for prepared ferrous scrap, such as
pre-reduced iron pellets, hot briquetted iron, pig iron, iron
carbide and other forms of processed iron. The availability of
substitutes for ferrous scrap could result in a decreased demand
for processed ferrous scrap, which could result in lower prices
for such products.
16
Our lead fabricating operations compete against two fabricators
of similar products in the Southwest who distributes nationally,
and several smaller regional producers of competing products
across much of our product line. To a lesser extent, we also
compete against products imported from Central and South
America, Canada, Europe and Asia. To the extent that one or more
of our competitors becomes more successful with respect to any
key factor, or new competition enters our markets, our ability
to attract and retain consumers could be materially and
adversely affected.
Unanticipated
disruptions in our operations or slowdowns by our shipping
companies could adversely affect our ability to deliver our
products, which could materially and adversely affect our
revenues and our relationship with our consumers.
Our ability to process and fulfill orders and manage inventory
depends on the efficient and uninterrupted operation of our
facilities. In addition, our products are usually transported to
consumers by third-party truck, rail carriers and barge
services. As a result, we rely on the timely and uninterrupted
performance of third party shipping companies and dock workers.
Any interruption in our operations or interruption or delay in
transportation services could cause orders to be canceled, lost
or delivered late, goods to be returned or receipt of goods to
be refused or result in higher transportation costs. As a
result, our relationships with our consumers and our revenues
and results of operations and financial condition could be
materially and adversely affected.
Our
operations consume large amounts of electricity and natural gas,
and shortages, supply disruptions or substantial increases in
the price of electricity and natural gas could adversely affect
our business.
The successful operation of our facilities depends on an
uninterrupted supply of electricity. Accordingly, we are at risk
in the event of an energy disruption. The electricity industry
has been adversely affected by shortages in regions outside of
the locations of our facilities. Prolonged black-outs or
brown-outs or disruptions caused by natural disasters such as
hurricanes would substantially disrupt our production. Any such
disruptions could materially and adversely affect our operating
results and financial condition. Electricity prices have become
more volatile with substantial increases over the past year.
Additional prolonged substantial increases would have an adverse
effect on the costs of operating our facilities and would
negatively impact our gross margins unless we were able to fully
pass through the additional expense to our consumers.
We depend on an uninterrupted supply of natural gas in our de-ox
and lead fabricating facilities. Supply for natural gas depends
primarily upon the number of producing natural gas wells, wells
being drilled, completed and re-worked, the depth and drilling
conditions of these wells and access to dependable methods of
delivery. The level of these activities is primarily dependent
on current and anticipated natural gas prices. Many factors,
such as the supply and demand for natural gas, general economic
conditions, political instability or armed conflict in worldwide
natural gas producing regions and global weather patterns
including natural disasters such as hurricanes affect these
prices. Natural gas prices have become very volatile. Additional
prolonged substantial increases would have an adverse effect on
the costs of operating our facilities and would negatively
impact our gross margins unless we were able to fully pass
through the additional expense to our consumers. We purchase
most of our electricity and natural gas requirements in local
markets for relatively short periods of time. As a result,
fluctuations in energy prices can have a material adverse effect
on the costs of operating our facilities and our operating
margins and cash flow.
The
loss of any member of our senior management team or a
significant number of our managers could have a material adverse
effect on our ability to manage our business.
Our operations depend heavily on the skills and efforts of our
senior management team, including Carlos E. Agüero, our
Chairman, President and Chief Executive Officer, Michael J.
Drury, our Executive Vice-President, and the other employees who
constitute our executive management team. In addition, we rely
substantially on the experience of the management of our
subsidiaries with regard to
day-to-day
operations. We have employment agreements with
Messrs. Agüero and Drury and certain other members of
our management team that expire in December 2012. However, there
can be no assurance that we will be able to retain the services
of any of these individuals. We face intense competition for
qualified personnel, and many of our competitors have greater
17
resources than we have to hire qualified personnel. The loss of
any member of our senior management team or a significant number
of managers could have a material adverse effect on our ability
to manage our business.
The
concentration of our consumers and our exposure to credit risk
could have a material adverse effect on our results of
operations and financial condition.
Sales to our ten largest consumers represented approximately
42.4% of consolidated net sales for the year ended
December 31, 2009 and 55.4% of consolidated net sales for
the year ended December 31, 2008. Sales to our largest
consumer represented approximately 18.0% of consolidated net
sales for the year ended December 31, 2009 and 30.0% of
consolidated net sales for the year ended December 31,
2008. In connection with the sale of our products, we generally
do not require collateral as security for consumer receivables
and do not maintain credit insurance. We have significant
balances owing from some consumers that operate in cyclical
industries and under leveraged conditions that may impair the
collectability of those receivables. The loss of a significant
consumer or our inability to collect accounts receivable would
negatively impact our revenues and profitability and could
materially and adversely affect our results of operations and
financial condition.
A
significant increase in the use of scrap metal alternatives by
current consumers of processed scrap metals could reduce demand
for our products.
During periods of high demand for scrap metals, tightness can
develop in the supply and demand balance for ferrous scrap. The
relative scarcity of ferrous scrap, particularly the
cleaner grades, and its high price during such
periods have created opportunities for producers of alternatives
to scrap metals, such as pig iron and direct reduced iron
pellets, to offer their products to our consumers. Although
these alternatives have not been a major factor in the industry
to date, the use of alternatives to scrap metals may proliferate
in the future if the prices for scrap metals rise or if the
levels of available unprepared ferrous scrap decrease. As a
result, we may be subject to increased competition which could
adversely affect our revenues and materially and adversely
affect our operating results and financial condition.
Our
operations are subject to stringent regulations, particularly
under applicable environmental laws, which could subject us to
increased costs.
The nature of our business and previous operations by others at
facilities owned or operated by us make us subject to
significant government regulation, including stringent
environmental laws and regulations. Among other things, these
laws and regulations impose comprehensive statutory and
regulatory requirements concerning, among other matters, the
treatment, acceptance, identification, storage, handling,
transportation and disposal of industrial by-products, hazardous
and solid waste materials, waste water, storm water effluent,
air emissions, soil contamination, surface and ground water
pollution, employee health and safety, operating permit
standards, monitoring and spill containment requirements,
zoning, and land use, among others. Various laws and regulations
set prohibitions or limits on the release of contaminants into
the environment. Such laws and regulations also require permits
to be obtained and manifests to be completed and delivered in
connection with the operations of our businesses, and in
connection with any shipment of prescribed materials so that the
movement and disposal of such material can be traced and the
persons responsible for any mishandling of such material can be
identified. This regulatory framework imposes significant
actual,
day-to-day
compliance burdens, costs and risks on us. Violation of such
laws and regulations may and do give rise to significant
liability, including fines, damages, fees and expenses, and
closure of a site. Generally, the governmental authorities are
empowered to act to clean up and remediate releases and
environmental damage and to charge the costs of such cleanup to
one or more of the owners of the property, the person
responsible for the release, the generator of the contaminant
and certain other parties or to direct the responsible party to
take such action. These authorities may also impose a penalty or
other liens to secure the parties reimbursement
obligations.
Environmental legislation and regulations have changed rapidly
in recent years, and it is possible that we will be subject to
even more stringent environmental standards in the future. For
these reasons, future capital expenditures for environmental
control facilities cannot be predicted with accuracy; however,
if environmental control standards become more stringent, our
compliance expenditures could increase substantially. Due to the
nature of our lead fabricating and scrap metal recycling
businesses, it is likely that inquiries or claims based upon
18
environmental laws may be made in the future by governmental
bodies or individuals against us and any other scrap metal
recycling entities that we may acquire. The location of some of
our facilities in urban areas may increase the risk of scrutiny
and claims. We cannot predict whether any such future inquiries
or claims will in fact arise or the outcome of such matters.
Additionally, it is not possible to predict the amounts of all
capital expenditures or of any increases in operating costs or
other expenses that we may incur to comply with applicable
environmental requirements, or whether these costs can be passed
on to consumers through product price increases.
Moreover, environmental legislation has been enacted, and may in
the future be enacted, to create liability for past actions that
were lawful at the time taken but that have been found to affect
the environment and to create public rights of action for
environmental conditions and activities. As is the case with
lead fabricating and scrap metal recycling businesses in
general, if damage to persons or the environment has been
caused, or is in the future caused, by hazardous materials
activities of us or our predecessors, we may be fined and held
liable for such damage. In addition, we may be required to
remedy such conditions
and/or
change procedures. Thus, liabilities, expenditures, fines and
penalties associated with environmental laws and regulations
might be imposed on us in the future, and such liabilities,
expenditures, fines or penalties might have a material adverse
effect on our results of operations and financial condition.
We are subject to potential liability and may also be required
from time to time to clean up or take certain remedial action
with regard to sites currently or formerly used in connection
with our operations. Furthermore, we may be required to pay for
all or a portion of the costs to clean up or remediate sites we
never owned or on which we never operated if we are found to
have arranged for transportation, treatment or disposal of
pollutants or hazardous or toxic substances on or to such sites.
We are also subject to potential liability for environmental
damage that our assets or operations may cause nearby
landowners, particularly as a result of any contamination of
drinking water sources or soil, including damage resulting from
conditions existing prior to the acquisition of such assets or
operations. Any substantial liability for environmental damage
could materially adversely affect our operating results and
financial condition, and could materially adversely affect the
marketability and price of our stock.
Certain of our sites are contaminated, and we are responsible
for certain off-site contamination as well. Such sites may
require investigation, monitoring and remediation. The existence
of such contamination may result in federal, state, local
and/or
private enforcement or cost recovery actions against us,
possibly resulting in disruption of our operations,
and/or
substantial fines, penalties, damages, costs and expenses being
imposed against us. We expect to require future cash outlays as
we incur costs relating to the remediation of environmental
liabilities and post-remediation compliance. These costs may
have a material adverse effect on our results of operations and
financial condition.
Environmental impairment liability insurance, which we only
carry on our scrap processing facility in Syracuse for
conditions existing there prior to our purchase of the property,
is prohibitively expensive and limited in the scope of its
coverage. Our general liability insurance policies in most cases
do not cover environmental damage. If we incur significant
liability for environmental damage not covered by insurance; or
for which we have not adequately reserved; or for which we are
not adequately indemnified by third parties; our results of
operations and financial condition could be materially adversely
affected.
In the past we have upon occasion been found not to be in
compliance with certain environmental laws and regulations, and
have incurred fines associated with such violations which have
not been material in amount. We may in the future incur
additional fines associated with similar violations. We have
also paid some or all of the costs of certain remediation
actions at certain sites. On occasion these costs have been
material. Material fines, penalties, damages and expenses
resulting from additional compliance issues and liabilities
might be imposed on us in the future.
Due diligence reviews in connection with our acquisitions to
date and environmental assessments of our operating sites
conducted by independent environmental consulting firms have
revealed that some soil, surface water
and/or
groundwater contamination, including various metals, arsenic,
petrochemical byproducts, waste oils, and volatile organic
compounds, is present at certain of our operating sites. Based
on our review of these reports, we believe that it is possible
that migratory contamination at varying levels may exist at some
of our sites, and we anticipate that some of our sites could
require investigation, monitoring and remediation in the future.
Moreover, the costs of such remediation could be material. The
existence of contamination at some of our facilities could
19
adversely affect our ability to sell these properties if we
choose to sell such properties, and, may generally require us to
incur significant costs to take advantage of any future selling
opportunities.
We believe that we are currently in material compliance with
applicable statutes and regulations governing the protection of
human health and the environment, including employee health and
safety. We can give no assurance, however, that we will continue
to be in compliance or to avoid material fines, penalties and
expenses associated with compliance issues in the future.
If
more of our employees become members of unions, our operations
could be subject to interruptions, which could adversely affect
our results of operations and cash flow.
As of December 31, 2009, approximately 46 of our employees
located at our facility in Granite City, Illinois were
represented by the United Steelworkers of America and
approximately 19 of our employees located at our scrap
processing facility in Akron, Ohio were represented by the
Chicago and Midwest Joint Board, formerly an affiliate of Unite
Here. Our agreement with the United Steelworkers of America
expires on March 15, 2011 and our agreement with the Joint
Board expires on June 25, 2011. Although we are not aware
at this time of any current attempts to organize other employees
of ours, our employees may organize in the future. If we are
unable to successfully renegotiate the terms of the contracts
governing our employees currently or in the future or if we
experience any extended interruption of operations at any of our
facilities as a result of strikes or other work stoppages, our
results of operations and cash flows could be materially and
adversely affected.
Our
operations present significant risk of injury or death. We may
be subject to claims that are not covered by or exceed our
insurance.
Because of the heavy industrial activities conducted at our
facilities, there exists a risk of injury or death to our
employees or other visitors, notwithstanding the safety
precautions we take. Our operations are subject to regulation by
federal, state and local agencies responsible for employee
health and safety, including the Occupational Safety and Health
Administration (OSHA), which has from time to time
levied fines against us for certain isolated incidents. While we
have in place policies to minimize such risks, we may
nevertheless be unable to avoid material liabilities for any
employee death or injury that may occur in the future. These
types of incidents may not be covered by or may exceed our
insurance coverage and may have a material adverse effect on our
results of operations and financial condition.
Our
business is seasonal and affected by weather conditions, which
could have an adverse effect on our revenues and operating
results.
Both of our business segments generally experience seasonal
slowness in the months of July and December, as consumers tend
to reduce production and inventories. In addition, periodic
maintenance shutdowns or labor disruptions at our larger
consumers may have an adverse impact on our operations. Our
operations can also be adversely affected by periods of
inclement weather, particularly during the winter and during the
hurricane season in the Southeast region of the United States,
which can adversely impact industrial and construction activity
as well as transportation and logistics.
We
intend to develop greenfield projects which are
subject to risks commonly associated with such
projects.
We intend to develop greenfield projects, either on
our own or through joint ventures. There are risks commonly
associated with the
start-up of
such projects which could result in operating difficulties or
delays in the
start-up
period and may cause us not to achieve our planned production,
timing, quality, environmental or cost projections, which could
have a material adverse effect on our results of operations,
financial condition and cash flows. These risks include, without
limitation, difficulties in obtaining permits, equipment
failures or damage, errors or miscalculations in engineering,
design specifications or equipment manufacturing, faulty
construction or workmanship, defective equipment or
installation, human error, industrial accidents, weather
conditions, failure to comply with environmental and other
permits, and complex integration of processes and equipment.
20
Risks
Relating to Our Common Stock
We do
not expect to pay any dividends for the foreseeable future. Our
stockholders may never obtain a return on their
investment.
We have never declared or paid dividends on our common stock,
and we do not expect to pay cash dividends on our common stock
in the foreseeable future. Instead, we anticipate that all our
earnings, if any, in the foreseeable future will be used to
finance the operation and growth of our business. In addition,
our ability to pay dividends to holders of our capital stock is
limited by our senior secured credit facilities, term notes and
our outstanding convertible notes. Any future determination to
pay dividends on our common stock is subject to the discretion
of our Board of Directors and will depend upon various factors,
including, without limitation, our results of operations and
financial condition.
Our
amended and restated certificate of incorporation, our bylaws,
Delaware law and certain instruments binding on us contain
provisions that could discourage a change in
control.
Some provisions of our amended and restated certificate of
incorporation and bylaws, as well as Delaware law, may be deemed
to have an anti-takeover effect or may delay or make more
difficult an acquisition or change in control not approved by
our Board of Directors, whether by means of a tender offer, open
market purchases, a proxy contest or otherwise. These provisions
could have the effect of discouraging third parties from making
proposals involving an acquisition or change in control,
although such a proposal, if made, might be considered desirable
by a majority of our stockholders. These provisions may also
have the effect of making it more difficult for third parties to
cause the replacement of our current management team without the
concurrence of our Board of Directors. In addition, our
outstanding convertible notes and certain of our warrants also
contain change in control provisions that could discourage a
change in control.
We
have incurred and will continue to incur significant increased
costs in order to assess our internal controls over financial
reporting and our internal controls over financial reporting may
be found to be deficient.
Section 404 of the Sarbanes-Oxley Act of 2002 requires
management to assess its internal controls over financial
reporting and requires auditors to attest to that assessment.
Current regulations of the Securities and Exchange Commission,
or SEC, require us to include this assessment and attestation in
our Annual Report on
Form 10-K
for each of our fiscal years.
We have incurred and will continue to incur significant
increased costs in maintaining compliance with existing
subsidiaries, implementing and testing controls at recently
acquired subsidiaries and responding to the new requirements. In
particular, the rules governing the standards that must be met
for management to assess its internal controls over financial
reporting under Section 404 are complex and require
significant documentation, testing and possible remediation. Our
process of reviewing, documenting and testing our internal
controls over financial reporting may cause a significant strain
on our management, information systems and resources. We may
have to invest in additional accounting and software systems. We
have been and may continue to be required to hire additional
personnel and to use outside legal, accounting and advisory
services. In addition, we will incur additional fees from our
auditors as they perform the additional services necessary for
them to provide their attestation. If we are unable to favorably
assess the effectiveness of our internal control over financial
reporting when we are required to, we may be required to change
our internal control over financial reporting to remediate
deficiencies. In addition, investors may lose confidence in the
reliability of our financial statements causing our stock price
to decline.
The
market price of our common stock has been volatile over the past
twelve months and may continue to be volatile.
The market price of our common stock has been volatile over the
past twelve months and it may continue to be volatile. We cannot
predict the price at which our common stock will trade in the
future and it may decline. The price at which our common stock
trades may fluctuate significantly and may be influenced by many
factors, including our financial results, developments generally
affecting our industries, the performance of each of our
business segments, our capital structure (including the amount
of our indebtedness), general economic, industry and
21
market conditions, especially in light of the current economic
crisis in the United States and elsewhere, the depth and
liquidity of the market for our common stock, fluctuations in
metal prices, investor perceptions of our business and us,
reports by industry analysts, negative announcements by our
customers, competitors or suppliers regarding their own
performances, and the impact of other Risk Factors
discussed in this prospectus supplement and the accompanying
prospectus.
Future
sales of our common stock, including sales of our common stock
acquired upon the exercise of outstanding options or warrants or
upon conversion of our outstanding convertible notes, may cause
the market price of our common stock to decline.
We had 46,425,224 shares of common stock outstanding as of
December 31, 2009. In addition, options to purchase an
aggregate of 2,101,632 shares of our common stock were
outstanding, of which 1,105,397 were vested as of
December 31, 2009. All remaining options will vest over
various periods ranging up to a three-year period measured from
the date of grant. As of December 31, 2009, the
weighted-average exercise price of the vested stock options was
$8.03 per share. As of December 31, 2009, we also had
warrants to purchase an aggregate of 1,424,231 shares of
common stock outstanding, at a weighted-average exercise price
of $12.88 per share and convertible notes in the principal
amount of $81.6 million outstanding, which are convertible
at a price of $14.00 per share. The convertible notes contain
weighted average anti-dilution protection which
provides for an adjustment of the conversion price of the notes
in the event that we issue shares of our common stock or
securities convertible or exercisable for shares of our common
stock at a price below the conversion price of the notes. The
amount of any such adjustment will depend on the price such
securities are sold at and the number of shares issued or
issuable in such transaction. We also may issue additional
shares of stock in connection with our business, including in
connection with acquisitions and financings, including this
offering, and may grant additional stock options to our
employees, officers, directors and consultants under our stock
option plans or warrants to third parties. If a significant
portion of these shares were sold in the public market, the
market value of our common stock could be adversely affected.
Our facilities are generally comprised of:
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indoor and outdoor processing areas;
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various pieces of production equipment and transportation
related equipment;
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warehouses for the storage of repair parts and of unprocessed
and processed ferrous and non-ferrous scrap;
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storage yards for unprocessed and processed scrap;
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machine or repair shops for the maintenance and repair of
vehicles and equipment;
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scales for weighing scrap;
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loading and unloading facilities;
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administrative offices; and
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garages for transportation equipment.
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Our scrap processing facilities have specialized equipment for
processing various types and grades of scrap metal, which may
include: grapples and magnets and front-end loaders to transport
and process both ferrous and non-ferrous scrap, crane-mounted
alligator or stationary guillotine shears to process large
pieces of scrap, wire stripping and chopping equipment, balers
and torch cutting stations. Processing operators transport
inbound and outbound scrap on a fleet of rolloff trucks, dump
trucks, stake-body trucks and lugger trucks.
A significant portion of our outbound ferrous scrap products are
shipped in rail cars generally provided by the railroad company
that services seven of our scrap locations.
22
Fabrication facilities include shot towers, rolling mills of
various sizes, extrusion presses, mold casting lines and
refining kettles used to process and make a variety of
lead-based products.
The following table sets forth information regarding our
principal properties:
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Buildings
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Approx.
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Approx.
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Leased/
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Location
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Operations
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Square. Ft.
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Acreage
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Owned
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Metalico, Inc.
186 North Ave. East
Cranford, NJ
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Corporate Headquarters
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6,190
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N/A
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Leased(1)
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Mayco Industries, Inc.
18 West Oxmoor Rd.
Birmingham, AL
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Office/ Lead Product Fabrication and Manufacturing and Storage
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96,183
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7.5
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Owned
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19 West Oxmoor Rd.
Birmingham, AL
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Warehouse
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75,000
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1.7
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Leased(2)
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1200 16th
St.
Granite City, IL
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Office/ Lead Product Fabrication
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180,570
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12.5
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Owned
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Metalico Buffalo, Inc.
127 Fillmore Ave
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Office/Scrap Processor/ Metal Storage
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312,966
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Owned
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Buffalo, NY
2504 South Park Ave
Lackawanna, NY
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Office/Buying Center
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4,584
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1.0
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Leased(3)
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Metalico Rochester, Inc.
1515 Scottsville Rd.
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Office/Scrap Processor/ Metal Storage
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74,175
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12.7
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Owned
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Rochester, NY
50 Portland Ave. Rochester, NY
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Office/Scrap Processor/ Metal Storage
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27,500
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3.2
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Owned
|
West Coast Shot, Inc.
32 Red Rock Rd.
Carson City, NV
|
|
Office/Storage
|
|
|
6,225
|
|
|
|
1.5
|
|
|
Owned
|
Metalico Transport, Inc.
1951 Hamburg Turnpike
Lackawanna, NY
|
|
Office/Scrap Handling/ Rail Sittings for Transshipping/Storage
|
|
|
28,992
|
|
|
|
12
|
|
|
Leased(4)
|
Metalico Aluminum Recovery, Inc.
6443 Thompson Rd.
Dewitt, NY
|
|
Office/ Scrap Handling/ Aluminum Melting/ De-Ox
Production/Storage
|
|
|
108,000
|
|
|
|
22
|
|
|
Owned
|
Metalico Niagara, Inc.
2133 Maple Ave.
Niagara Falls, NY
|
|
Office/Scrap Processor/ Metal Storage
|
|
|
4,050
|
|
|
|
1
|
|
|
Leased(5)
|
Santa Rosa Lead Products, Inc.
33 So. University St.
Healdsburg, CA
|
|
Office/ Lead Product Fabrication and Storage
|
|
|
14,000
|
|
|
|
1.5
|
|
|
Leased(6)
|
3949 Guasti Rd.
Ontario, CA
|
|
Office/Production/Storage
|
|
|
6,160
|
|
|
|
N/A
|
|
|
Leased(7)
|
Metalico Transfer, Inc.
150 Lee Road
Rochester, NY
|
|
Office/ Waste Transfer Station
|
|
|
35,000
|
|
|
|
5
|
|
|
Owned
|
Totalcat Group, Inc.
2-20 E. Peddie Street
Newark, NJ
|
|
Office/Catalytic Converter Processor/ Material Storage
|
|
|
22,000
|
|
|
|
N/A
|
|
|
Leased(8)
|
901 South Bolmar St.
West Chester, PA
|
|
Office/ Production/ Material Storage
|
|
|
8,160
|
|
|
|
N/A
|
|
|
Leased(9)
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
|
|
|
|
|
|
Approx.
|
|
Approx.
|
|
Leased/
|
Location
|
|
Operations
|
|
Square. Ft.
|
|
Acreage
|
|
Owned
|
|
Metalico Akron, Inc
888 Hazel Street
Akron, OH
|
|
Office/Scrap Processor/ Metal Storage
|
|
|
6,660
|
|
|
|
10.3
|
|
|
Owned
|
943 Hazel Street
Akron, OH
|
|
Scrap Processor/ Metal Storage
|
|
|
34,350
|
|
|
|
19.7
|
|
|
Owned
|
Tranzact, Inc.
1185 Lancaster Pike
Quarryville, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
12,000
|
|
|
|
2.7
|
|
|
Leased(10)
|
American Catcon, Inc.
17401 Interstate Highway 35
Buda, TX
|
|
Office/Catalytic Converter Processor Material Storage
|
|
|
30,000
|
|
|
|
10
|
|
|
Leased(11)
|
4577 Mint Way
Dallas, TX
|
|
Office/Catalytic Converter Processor/ Material Storage
|
|
|
6,664
|
|
|
|
N/A
|
|
|
Leased(12)
|
10123 Southpark Drive
Gulfport, MS
|
|
Office/Catalytic Converter Processor/ Material Storage
|
|
|
10,000
|
|
|
|
2.5
|
|
|
Owned
|
Metalico Pittsburgh, Inc.
3100 Grand Avenue
Neville Township, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
751,878
|
|
|
|
17.26
|
|
|
Owned
|
3400 Grand Avenue
Neville Township, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
247,734
|
|
|
|
5.68
|
|
|
Owned
|
996 Brownsville Road
Fayette City, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
80,136
|
|
|
|
1.84
|
|
|
Owned
|
1093 Fredonia Road
Hadley, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
5,096
|
|
|
|
4.92
|
|
|
Owned
|
1046 Brownsville Road
Fayette City, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
19,705
|
|
|
|
10.67
|
|
|
Owned
|
2024 Harmon Creek Road
Colliers, WV
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
5,050
|
|
|
|
3.28
|
|
|
Owned
|
96 Oliver Road
Uniontown, PA
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
4,000
|
|
|
|
18.6
|
|
|
Leased (13)
|
Metalico Youngstown, Inc.
100 Division Street
Youngstown, OH
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
5,226
|
|
|
|
16.86
|
|
|
Leased (14)
|
1420 Burton Street SE
Warren, OH
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
6,250
|
|
|
|
2.15
|
|
|
Leased (14)
|
3108 DeForest Road
Warren, OH
|
|
Office/ Scrap Processor/ Metal Storage
|
|
|
7,920
|
|
|
|
4.52
|
|
|
Leased (14)
|
|
|
|
(1) |
|
The lease on our corporate headquarters expires June 30,
2012, subject to an automatic renewal clause for two successive
three-year periods that is effective unless we give notice at
least 180 days prior to the then-effective termination
date. The current annual rent is $162,580. |
|
(2) |
|
The lease expires December 31, 2010. The lessor may
terminate at any time on thirty days written notice. The
annual rent was $39,000 for the year ending December 31,
2009 and is $39,000 for the year ending December 31, 2010. |
|
(3) |
|
The lease expires August 31, 2013. We have the right to
renew for one additional term of two years. The current
aggregate monthly rent is $5,125. |
|
(4) |
|
This is a month to month lease at $3,500 a month that includes
access to 750 feet of railroad. |
|
(5) |
|
The lease expires October 31, 2010. We have rights to renew
for two consecutive terms of five additional years. The annual
rent is $30,000. We also have an option to purchase the
underlying premises for a price to be determined. The option
expires upon the expiration of the term of the lease, including
any renewal terms. |
|
(6) |
|
The lease expires April 30, 2013. The current monthly rent
is $8,800 and the annual rent is $105,600. |
24
|
|
|
(7) |
|
The lease expires July 31, 2010. Monthly rent is $5,914. |
|
(8) |
|
The lease expires February 28, 2013. The annual rent is
$208,260. |
|
(9) |
|
The lease expires August 14, 2011. The annual rent for 2010
is $133,477 and $88,985 through the August 14, 2011
expiration date. We have the right, with at least nine months
prior written notice to the landlord, to extend the lease for
two additional three-year terms. |
|
(10) |
|
The lease expires May 31, 2012 with an option to renew for
one five-year period. The annual rent for the initial term is
$84,000. Annual rent for renewal term is $96,600. Renewal is
automatic unless tenant sends written notice not less than six
months prior to expiration of first term. |
|
(11) |
|
The lease expires January 31, 2013. The annual rent is
$366,323. Tenant has the right, with at least ninety days prior
written notice to the landlord, to extend the lease for one
additional five-year term. Annual rent for each year in the
renewal term would increase in accordance with increases in the
Consumer Price Index. Tenant also holds an option to purchase
the premises. |
|
(12) |
|
The lease expires June 30, 2010. The remaining rent through
expiration is $12,894. |
|
(13) |
|
The lease expires April 30, 2018. The annual rent is
$34,000. |
|
(14) |
|
The combined lease for these three locations expires
March 31, 2010. The monthly rent is $6,000. We hold an
option to purchase the properties that has been exercised. If
closing does not occur by March 31, 2010, the lease will
continue month to month. |
We believe that our facilities are suitable for their present
and intended purposes and that we have adequate capacity for our
current levels of operation.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are involved in various litigation matters
involving ordinary and routine claims incidental to our
business. A significant portion of these matters result from
environmental compliance issues and workers compensation-related
claims applicable to our operations. We are involved in
litigation and environmental proceedings as described below.
Our Gulf Coast Recycling, Inc. subsidiary (Gulf
Coast), previously located in Tampa, Florida, is a party
to four consent orders and two settlement agreements governing
remediation and monitoring of various sites in the greater Tampa
area. All agreed remediation under those orders and pursuant to
those agreements has been completed. The Company and its
subsidiaries are at this time in material compliance with all of
their obligations under the consent orders and settlement
agreements. Substantially all of Gulf Coasts assets,
including its real property interests, were sold on May 31,
2006 and Gulf Coast is no longer responsible for
on-site or
adjacent remediation or monitoring.
Our previously disclosed dispute with Niles Iron &
Metal Company, Inc. (NIMCO) has been resolved. In
September of 2006, NIMCO filed suit against Metalico, Inc. and
Metalico Niles, Inc. (Metalico Niles), a subsidiary
of Metalico, Inc., in the Court of Common Pleas of Trumbull
County, Ohio, after the contemplated purchase of NIMCOs
assets by Metalico did not close. In December of 2009, the
parties agreed to settle the dispute. On December 18, 2009
the Court entered a dismissal of all claims and counterclaims.
Our previously disclosed dispute involving the acquisition of
certain assets by our Metalico Catcon, Inc. subsidiary, now
known as American Catcon, Inc. (American Catcon) has
also been resolved. On January 25, 2008, American Catcon
closed a purchase of substantially all of the operating assets
of American Catcon Holdings, LLC (ACC) and retained
a principal of ACC as general manager. In October of 2008,
American Catcon terminated the general manager and, with
Metalico, Inc., commenced arbitration against him, ACC, and its
owners in connection with representations made at closing. The
manager counterclaimed for wrongful termination. On
June 17, 2009, ACC Texas filed a separate suit in the
U.S. District Court for the Western District of Texas
seeking to enforce a guaranty of a sellers note by
Metalico, Inc. outside the arbitration proceeding. On
August 6, 2009, the court granted the Companys motion
to stay the suit pending the outcome of the arbitration
proceeding. In December of 2009 the parties settled all claims
and counterclaims and subsequently withdrew all pending
proceedings.
25
We know of no material existing or pending legal proceedings
against the Company, nor are we involved as a plaintiff in any
material proceeding or pending litigation. There are no
proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial stockholder, is an
adverse party or has a material interest adverse to our
interest. The outcome of open unresolved legal proceedings is
presently indeterminable. Any settlement resulting from
resolution of these contingencies will be accounted for in the
period of settlement. We do not believe the potential outcome
from these legal proceedings will significantly impact our
financial position, operations or cash flows.
26
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Market
Information
Trading in our common stock commenced on the American Stock
Exchange (now known as NYSE Amex) on March 15, 2005 under
the symbol MEA. The table below sets forth, on a per
share basis for the period indicated, the high and low closing
sale prices for our common stock as reported by NYSE Amex.
|
|
|
|
|
|
|
|
|
|
|
Price Range
|
|
|
High
|
|
Low
|
|
Year End December 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
3.66
|
|
|
$
|
1.41
|
|
Second Quarter
|
|
$
|
5.26
|
|
|
$
|
1.81
|
|
Third Quarter
|
|
$
|
4.99
|
|
|
$
|
3.31
|
|
Fourth Quarter
|
|
$
|
4.98
|
|
|
$
|
3.81
|
|
Year End December 31, 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
13.00
|
|
|
$
|
8.80
|
|
Second Quarter
|
|
$
|
18.44
|
|
|
$
|
9.71
|
|
Third Quarter
|
|
$
|
17.60
|
|
|
$
|
5.00
|
|
Fourth Quarter
|
|
$
|
5.35
|
|
|
$
|
1.27
|
|
The closing sale price of our common stock as reported by NYSE
Amex on March 10, 2010 was $6.03.
Holders
As of March 10, 2010, there were 319 holders of record of
our common stock, 24 holders of warrants to purchase our common
stock, and 117 holders of stock options exercisable for shares
of our common stock.
Dividends
We have never declared or paid dividends on our common stock,
and we do not expect to pay cash dividends on our common stock
in the foreseeable future. Instead, we anticipate that all our
earnings, if any, in the foreseeable future will be used to
finance the operation and growth of our business. In addition,
our ability to pay dividends to holders of our capital stock is
limited by our senior secured credit facility. Any future
determination to pay dividends on our common stock is subject to
the discretion of our Board of Directors and will depend upon
various factors, including, without limitation, our results of
operations and financial condition. In addition, at this time
our senior secured credit facility prohibits the payment of
dividends. We have no preferred stock outstanding.
EQUITY
COMPENSATION PLAN INFORMATION
We have two stockholder approved equity compensation plans, the
1997 Long Term Incentive Plan and the 2006 Long-Term Incentive
Plan described above. Options generally vest in equal monthly
installments over three years and may be exercised for up to
five years from the date of grant.
27
The following table provides certain information regarding our
equity incentive plans as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average Exercise
|
|
|
Future Issuance Under
|
|
|
|
be Issued Upon Exercise
|
|
|
Price of Outstanding
|
|
|
Equity Compensation Plans
|
|
|
|
of Outstanding Options,
|
|
|
Options,
|
|
|
(Excluding Securities
|
|
|
|
Warrants and
|
|
|
Warrants and
|
|
|
Reflected in
|
|
Plan Category
|
|
Rights
|
|
|
Rights
|
|
|
Column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
1,105,397
|
|
|
$
|
8.03
|
|
|
|
4,642,522
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,105,397
|
|
|
$
|
8.03
|
|
|
|
4,642,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder
Performance
Set forth below is a line graph comparing the cumulative total
stockholder return on our common stock against the cumulative
total return of the Russell 2000 Index and the
Standard & Poors Iron and Steel Industry Index
Group from March 15, 2005, the first day of public trading
of our common stock on the American Stock Exchange (now known as
NYSE Amex), through December 31, 2009. The graph assumes
that $100 was invested in the Companys Common Stock and
each index on March 15, 2005, and that all dividends were
reinvested.
Notwithstanding anything to the contrary set forth in any of our
filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might
incorporate by reference this
Form 10-K,
in whole or in part, the following Performance Graph shall not
be incorporated by reference into any such filings.
Comparison
of Cumulative Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/15/2005
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
12/31/2008
|
|
12/31/2009
|
|
Metalico. Inc.
|
|
|
100.0
|
|
|
|
58.3
|
|
|
|
97.1
|
|
|
|
207.9
|
|
|
|
29.8
|
|
|
|
94.6
|
|
Russell 2000 Index
|
|
|
100.0
|
|
|
|
107.4
|
|
|
|
125.7
|
|
|
|
122.2
|
|
|
|
79.7
|
|
|
|
99.8
|
|
S&P Steel Index
|
|
|
100.0
|
|
|
|
104.9
|
|
|
|
184.4
|
|
|
|
219.8
|
|
|
|
103.5
|
|
|
|
130.1
|
|
28
|
|
Item 6.
|
Selected
Financial Data
|
SELECTED
HISTORICAL FINANCIAL DATA
The selected historical financial data set forth below should be
read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and
our consolidated financial statements and notes thereto
appearing elsewhere in this
Form 10-K.
The selected income statement data for the years ended
December 31, 2009, 2008 and 2007 and the selected balance
sheet data as of December 31, 2009 and 2008 have been
derived from our audited consolidated financial statements
included elsewhere in this report. The selected income statement
data for the years ended December 31, 2006 and 2005 and the
selected balance sheet data as of December 31, 2007, 2006
and 2005 have been derived from audited consolidated financial
statements that are not included in this
Form 10-K.
The historical results are not necessarily indicative of the
results of operations to be expected in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
($ thousands, except share data)
|
|
|
Selected Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
291,733
|
|
|
$
|
818,195
|
|
|
$
|
334,213
|
|
|
$
|
207,655
|
|
|
$
|
155,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
239,647
|
|
|
|
756,099
|
|
|
|
278,256
|
|
|
|
170,090
|
|
|
|
126,150
|
|
Selling, general and administrative expenses
|
|
|
25,994
|
|
|
|
30,146
|
|
|
|
20,315
|
|
|
|
13,772
|
|
|
|
11,492
|
|
Impairment charges
|
|
|
|
|
|
|
59,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,240
|
|
|
|
12,864
|
|
|
|
6,279
|
|
|
|
3,890
|
|
|
|
3,589
|
|
Gain on acquisition
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,015
|
|
|
|
858,152
|
|
|
|
304,850
|
|
|
|
187,752
|
|
|
|
141,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
13,718
|
|
|
$
|
(39,957
|
)
|
|
$
|
29,363
|
|
|
$
|
19,903
|
|
|
$
|
14,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(3,640
|
)
|
|
$
|
(42,430
|
)
|
|
$
|
15,671
|
|
|
$
|
11,619
|
|
|
$
|
6,933
|
|
Discontinued operations
|
|
|
195
|
|
|
|
(1,230
|
)
|
|
|
(918
|
)
|
|
|
(1,291
|
)
|
|
|
(1,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,445
|
)
|
|
$
|
(43,660
|
)
|
|
$
|
14,753
|
|
|
$
|
10,328
|
|
|
$
|
5,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(1.21
|
)
|
|
$
|
0.54
|
|
|
$
|
0.46
|
|
|
$
|
0.29
|
|
Discontinued operations, net
|
|
|
0.00
|
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
0.51
|
|
|
$
|
0.41
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(1.21
|
)
|
|
$
|
0.53
|
|
|
$
|
0.45
|
|
|
$
|
0.29
|
|
Discontinued operations, net
|
|
|
0.00
|
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.05
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
0.50
|
|
|
$
|
0.40
|
|
|
$
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,200,895
|
|
|
|
35,136,316
|
|
|
|
29,004,254
|
|
|
|
24,922,942
|
|
|
|
24,133,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
41,200,895
|
|
|
|
35,136,316
|
|
|
|
29,338,751
|
|
|
|
26,016,562
|
|
|
|
24,317,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
293,416
|
|
|
$
|
340,293
|
|
|
$
|
269,570
|
|
|
$
|
118,407
|
|
|
$
|
101,437
|
|
Total Debt (Including Current Maturities)
|
|
$
|
116,793
|
|
|
$
|
184,709
|
|
|
$
|
95,103
|
|
|
$
|
18,502
|
|
|
$
|
29,318
|
|
Redeemable Preferred and Common Stock
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,000
|
|
Stockholders Equity
|
|
$
|
150,257
|
|
|
$
|
112,972
|
|
|
$
|
124,017
|
|
|
$
|
73,713
|
|
|
$
|
55,011
|
|
29
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
You should read the following discussion and analysis in
conjunction with our consolidated financial statements and the
related notes and other financial information included elsewhere
in this prospectus. Some of the information contained in this
discussion and analysis includes forward-looking statements. You
should review the Risk Factors section of this
prospectus for a discussion of important factors that could
cause actual results to differ materially from the results
described in or implied by these forward-looking statements.
Please refer to Special Note Regarding Forward-Looking
Statements for more information. The results for the
periods reflected herein are not necessarily indicative of
results that may be expected for future periods.
GENERAL
We operate in twenty-eight locations primarily in two distinct
business segments: (i) ferrous and nonferrous scrap metal
recycling (Scrap Metal Recycling) and
(ii) product manufacturing, fabricating, and refining of
lead and other metals (Lead Fabricating). The Scrap
Metal Recycling segment includes twenty-four scrap metal
recycling facilities located in New York, New Jersey, Ohio,
Pennsylvania, Texas, Mississippi, and West Virginia, and an
aluminum de-ox plant located in Syracuse, New York.
The Lead Fabricating segment includes four lead fabrication and
recycling plants located in Birmingham, Alabama; Healdsburg and
Ontario, California and Granite City, Illinois.
CRITICAL
ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of our financial statements requires the use of
estimates and judgments that affect the reported amounts and
related disclosures of commitments and contingencies. We rely on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances to make
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Areas that
require significant judgments, estimates, and assumptions
include accounting for revenues; accounts receivable and
allowance for uncollectible accounts receivable; derivatives and
hedging activities; environmental and litigation matters; the
testing of goodwill; stock-based compensation; and income taxes.
Management uses historical experience and all available
information to make these judgments, estimates, and assumptions,
and actual results may differ from those used to prepare the
Companys Consolidated Financial Statements at any given
time. Despite these inherent limitations, management believes
that Managements Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated
Financial Statements and accompanying Notes provide a meaningful
and fair perspective of the Company.
The critical accounting policies that affect the more
significant judgments and estimates used in the preparation of
our consolidated financial statements are disclosed in
Note 1 to the Consolidated Financial Statements located
elsewhere in this filing
Revenue recognition: Revenue from product
sales is recognized as goods are shipped, which generally is
when title transfers and the risks and rewards of ownership have
passed to customers. Title for the Companys products
transfers upon shipment, based on free on board
(FOB) terms. Brokerage sales are recognized upon
receipt of materials by the customer and reported net of costs
in product sales. Historically, there have been very few sales
returns and adjustments in excess of reserves for such instances
that would impact the ultimate collection of revenues therefore,
no material provisions have been made when a sale is recognized.
Accounts Receivable and Allowance for Uncollectible Accounts
Receivable: Accounts receivable consists
primarily of amounts due from customers from product sales. The
allowance for uncollectible accounts receivable totaled
$1.2 million and $1.9 million as of December 31,
2009 and 2008, respectively. Our determination of the allowance
for uncollectible accounts receivable includes a number of
factors, including the age of the accounts, past experience with
the accounts, changes in collection patterns and general
industry conditions.
Derivatives and Hedging: We are exposed to
certain risks relating to our ongoing business operations. The
primary risks managed by using derivative instruments are
commodity price risk and interest rate risk. We use
30
forward sales contracts with PGM substrate processors to protect
against volatile commodity prices. This process ensures a fixed
selling price for the material we purchase and process. We
secure selling prices with PGM processors, in ounces of
Platinum, Palladium and Rhodium, in incremental lots for
material which we expect to purchase within an average 2 to
3 day time period. However, these forward sales contracts
with PGM substrate processors are not subject to any hedge
designation as they are considered within the normal sales
exemption provided by ASC Topic 815.
We have in the past entered into interest rate swaps to manage
interest rate risk associated with our variable-rate borrowings.
In connection with the new Credit Agreement entered into on
March 2, 2010, with JP Morgan Chase Bank, N.A., the Company
was required to terminate the $20.0 million interest rate
swap contract. As a result, the Company paid $760,000 to
terminate the interest rate swap contract. With the termination
of the interest rate swap contract, no other interest rate swap
agreement is outstanding.
Goodwill: The carrying amount of goodwill is
tested annually as of December 31 and whenever events or
circumstances indicate that impairment may have occurred.
Judgment is used in assessing whether goodwill should be tested
more frequently for impairment than annually. Factors such as
unexpected adverse economic conditions, competition and other
external events may require more frequent assessments.
The goodwill impairment test follows a two-step process. In the
first step, the fair value of a reporting unit is compared to
its carrying value. If the carrying value of a reporting unit
exceeds its fair value, the second step of the impairment test
is performed for purposes of measuring the impairment. In the
second step, the fair value of the reporting unit is allocated
to all of the assets and liabilities of the reporting unit to
determine an implied goodwill value. This allocation is similar
to a purchase price allocation. If the carrying amount of the
reporting units goodwill exceeds the implied fair value of
goodwill, an impairment loss will be recognized in an amount
equal to that excess.
For purposes of this testing, the Company has determined to have
six reporting units as follows: Lead Fabricating and Recycling,
New York Scrap Recycling, Pittsburgh Scrap Recycling, Akron
Scrap Recycling, Newark PGM Recycling and Texas PGM Recycling.
The Youngstown operation was not assessed for impairment since
its acquisition date and the date of our impairment testing were
very close in time.
In determining the carrying value of each reporting unit,
management allocates net deferred taxes and certain corporate
maintained liabilities specifically allocable to each reporting
unit to the net operating assets of each reporting unit. The
carrying amount is further reduced by any impairment charges
made to other indefinite lived intangibles of a reporting unit.
Since market prices of our reporting units are not readily
available, we makes various estimates and assumptions in
determining the estimated fair values of the reporting units.
The evaluation of impairment involves comparing the current fair
value of each reporting unit to its carrying value, including
goodwill. We use a discounted cash flow model (DCF Model)
to estimate the current fair value of our reporting units when
testing for impairment. A number of significant assumptions and
estimates are involved in the application of the DCF model
to forecast operating cash flows, including sales volumes,
profit margins, tax rates, capital spending, discount rate, and
working capital changes. Forecasts of operating and selling,
general and administrative expenses are generally based on
historical relationships of previous years. When applying the
DCF Model, the cash flows expected to be generated are
discounted to their present value equivalent using a rate of
return that reflects the relative risk of the investment, as
well as the time value of money. This return is an overall rate
based upon the individual rates of return for invested capital
(equity and interest-bearing debt). The return, known as the
weighted average cost of capital (WACC), is calculated by
weighting the required returns on interest-bearing debt and
common equity in proportion to their estimated percentages in an
expected capital structure. For our 2009 analysis, we arrived at
a discount rate of 17.5%. The inputs used in calculating the
WACC include (i) average of capital structure ratios used
in previous Metalico acquisition valuations, (ii) an
estimate of combined federal and state tax rates (iii) the
cost of Baa rated debt based on Moodys Seasoned
Corporate Bond Yields December 1, 2009 and (iv) a
22.3% required return on equity determined under the Modified
Capital Asset Pricing (CAPM) model.
If the carrying amount of a reporting unit that contains
goodwill exceeds fair value, a possible impairment would be
indicated. If a possible impairment is indicated, the implied
fair value of goodwill would be estimated by
31
comparing the fair value of the net assets of the reporting
unit, excluding goodwill, to the total fair value of the unit.
If the carrying amount of goodwill exceeds its implied fair
value, an impairment charge would be recorded.
At December 31, 2008, we performed our annual testing for
impairment of goodwill. As part of our assessment of the
recovery of goodwill, we conducted an extensive valuation
analysis using an income approach based upon a five-year
financial projection that took into consideration the current
weak economic conditions with modest recovery occurring in the
second half of 2009. The impairment analysis indicated that
impairment existed at four reporting units and the Company
recorded a goodwill impairment charge of $36.3 million for
the year ended December 31, 2008.
At December 31, 2009, the financial markets and industry in
which we operate have improved from the conditions that existed
at December 31, 2008. Additionally, we have experienced an
increase in the price of our common stock and total market
capitalization value. At December 31, 2009, the
Companys market capitalization exceeded total
stockholders equity by approximately $78.2 million.
Significant improvements in economic conditions in industries in
which we purchase and sell material have resulted in forecasts
which, when used in our DCF model, support the carrying
value of our goodwill in all of our reporting units. As such, no
indicators of impairment were identified for the year ended
December 31, 2009.
Intangible Assets and Other Long-Lived
Assets: The Company tests indefinite-lived
intangibles such as trademarks and tradenames for impairment by
comparing the carrying value of the intangible to the projected
discounted cash flows produced from the intangible. If the
carrying value exceeds the projected discounted cash flows
attributed to the intangible asset, the carrying value is no
longer considered recoverable and the Company will record
impairment.
The Company tests all finite-lived intangible assets and other
long-lived assets, such as fixed assets, for impairment only if
circumstances indicate that possible impairment exists. To the
extent actual useful lives are less than our previously
estimated lives, we will increase our amortization expense on a
prospective basis. We estimate useful lives of our intangible
assets by reference to both contractual arrangements such as
non-compete covenants and current and projected cash flows for
supplier and customer lists. At December 31, 2009, no indicators
of impairment were identified and no adjustments were made to
the estimated lives of finite-lived assets.
Stock-based Compensation: We recognize expense
for equity based compensation ratably over the requisite service
period based on the grant date fair value. We calculate the fair
value of the award on the date of grant using the Black-Scholes
method. The fair value of new stock options is estimated using a
lattice-pricing model. Determining the fair value of stock
options at the grant date requires judgment, including estimates
for the average risk-free interest rate, dividend yield,
volatility in our stock price, annual forfeiture rates, and
exercise behavior. These assumptions may differ significantly
between grant dates because of changes in the actual results of
these inputs that occur over time.
Income taxes: Our provision for income taxes
reflects income taxes paid or payable (or received or
receivable) for the current year plus the change in deferred
taxes during the year. Deferred taxes represent the future tax
consequences expected to occur when the reported amounts of
assets and liabilities are recovered or paid, and result from
differences between the financial and tax bases of our assets
and liabilities and are adjusted for changes in tax rates and
tax laws when enacted. Valuation allowances are recorded to
reduce deferred tax assets when it is more likely than not that
a tax benefit will not be realized.
32
RESULTS
OF OPERATIONS
The Company is divided into two industry segments: Scrap Metal
Recycling, which breaks down into three general product
categories, ferrous, non-ferrous and platinum group metals, and
Lead Fabricating.
The following table sets forth information regarding the
breakdown of revenues between the Companys Scrap Metal
Recycling segment and its Lead Fabricating segment ($, pounds
and tons in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
Fiscal Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Weight
|
|
|
Revenues
|
|
|
%
|
|
|
Weight
|
|
|
Revenues
|
|
|
%
|
|
|
Weight
|
|
|
Revenues
|
|
|
%
|
|
|
Scrap Metal Recycling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferrous metals (weight in tons)
|
|
|
306.6
|
|
|
$
|
77,954
|
|
|
|
26.7
|
|
|
|
439.7
|
|
|
$
|
214,680
|
|
|
|
26.2
|
|
|
|
286.0
|
|
|
$
|
78,699
|
|
|
|
23.6
|
|
Non-ferrous metals (weight in lbs.)
|
|
|
94,560
|
|
|
|
81,927
|
|
|
|
28.1
|
|
|
|
128,038
|
|
|
|
172,715
|
|
|
|
21.1
|
|
|
|
88,055
|
|
|
|
129,032
|
|
|
|
38.6
|
|
Platinum group metals (weight in lbs.)
|
|
|
2,970
|
|
|
|
69,357
|
|
|
|
23.8
|
|
|
|
7,929
|
|
|
|
336,330
|
|
|
|
41.1
|
|
|
|
970
|
|
|
|
33,163
|
|
|
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Scrap Metal Recycling
|
|
|
|
|
|
|
229,238
|
|
|
|
78.6
|
|
|
|
|
|
|
|
723,725
|
|
|
|
88.4
|
|
|
|
|
|
|
|
240,894
|
|
|
|
72.1
|
|
Lead Fabricating (weight in lbs.)
|
|
|
58,341
|
|
|
|
62,495
|
|
|
|
21.4
|
|
|
|
55,492
|
|
|
|
89,346
|
|
|
|
10.9
|
|
|
|
61,686
|
|
|
|
93,319
|
|
|
|
27.9
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,124
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
|
|
|
$
|
291,733
|
|
|
|
100.0
|
|
|
|
|
|
|
$
|
818,195
|
|
|
|
100.0
|
|
|
|
|
|
|
$
|
334,213
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth information regarding average
Metalico selling prices for the past eight quarters. The
fluctuation in pricing is due to many factors including domestic
and export demand and our product mix.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Average
|
|
Average
|
|
|
Ferrous
|
|
Non-Ferrous
|
|
PGM
|
|
Lead
|
For the quarter ending:
|
|
Price per ton
|
|
Price per lb.
|
|
Price per lb
|
|
Price per lb.
|
|
December 31, 2009
|
|
$
|
292
|
|
|
$
|
0.92
|
|
|
$
|
24.04
|
|
|
$
|
1.39
|
|
September 30, 2009
|
|
$
|
269
|
|
|
$
|
0.98
|
|
|
$
|
23.52
|
|
|
$
|
1.17
|
|
June 30, 2009
|
|
$
|
205
|
|
|
$
|
0.83
|
|
|
$
|
24.77
|
|
|
$
|
0.94
|
|
March 31, 2009
|
|
$
|
252
|
|
|
$
|
0.68
|
|
|
$
|
17.38
|
|
|
$
|
0.95
|
|
December 31, 2008
|
|
$
|
329
|
|
|
$
|
1.11
|
|
|
$
|
20.92
|
|
|
$
|
1.34
|
|
September 30, 2008
|
|
$
|
536
|
|
|
$
|
1.36
|
|
|
$
|
39.32
|
|
|
$
|
1.53
|
|
June 30, 2008
|
|
$
|
555
|
|
|
$
|
1.41
|
|
|
$
|
50.51
|
|
|
$
|
1.73
|
|
March 31, 2008
|
|
$
|
376
|
|
|
$
|
1.39
|
|
|
$
|
44.35
|
|
|
$
|
1.78
|
|
For most scrap processors, early 2009 mirrored the weak pricing
and anemic demand of the latter part of 2008 brought on by the
global financial crisis. Starting in the middle of the second
quarter of 2009, domestic scrap prices have steadily improved
mostly due to export demand. This relative strength in export
markets driven by improved production at foreign mills and
attractiveness of
U.S.-produced
scrap, combined with recent signs of improvement in production
at U.S. domestic mills, have contributed to steady
increases in ferrous scrap metal prices.
The results of the Scrap Metal Recycling segment operations
depend in large part upon demand and prices for recycled metals
in world markets. Scrap sold into the export market is
principally shipped from the United States and Europe, where in
less developed countries scrap is consumed internally. Despite
dramatic declines in domestic scrap demand, U.S. export
markets have been relatively robust in 2009 despite the global
economic slowdown. Turkey has become a significant destination
for
U.S.-produced
scrap (21% of total exports in 2008) followed by China,
South Korea, Taiwan and Canada. Ultimately, the health of
foreign economies and regions will dictate overseas demand for
U.S.-produced
scrap, although factors including a weak U.S. dollar and
more favorable freight rates may also further support the
attractiveness of
U.S.-processed
scrap to overseas consumers. Freight costs attached to shipments
overseas are passed through by processors to the customer.
Higher freight costs can influence demand for domestic scrap as
foreign mills may search elsewhere for less expensive sources.
33
The domestic steel industrys long climb back to better
health continued into late 2009. Steel producers in the United
States, according to the American Iron and Steel Institute
(AISI), produced nearly 1.55 million tons of raw steel in
the week ending December 12, 2009. This was up by
1.9 percent compared to the week before and up dramatically
from the less than 1 million tons that were produced during
the same week of the previous year. As such, ferrous scrap
prices took a sharp upward turn in December of 2009. The
December rebound was anticipated by scrap recyclers as early as
mid-November, as domestic steel mill buyers began to reemerge to
compete for material with overseas bulk cargo and containerized
scrap buyers. Many processors have indicated that domestic mills
may have allowed their inventories to sink too low early in the
fourth quarter of 2009, forcing them to pick up the pace of
their buying in late November and December.
Prices for non-ferrous metals reached record levels in 2008 and
fell sharply in the second half of 2008 on fears of a prolonged
recession due in part to the world-wide credit crisis.
Increases in platinum and palladium prices throughout 2009 have
been driven by strengthening industrial demand as well as
speculative and investor interest in the anticipation of
tightening medium-term fundamentals, particularly from the
demand side. Increases in demand, fueled by government stimulus,
have boosted global auto production. As a result, prices of
platinum and palladium have rebounded sharply during in 2009.
Platinum was testing $1,500 an ounce in early December,
signaling a rise of 14% over the final quarter, a
12-month
increase of 81% and 184% from its low of mid-November 2008.
Palladium rose over 100% during the year, with prices increasing
from $185 an ounce at the start of 2009 to $380 an ounce in
early December a 212% increase from November 2008.
The Lead Fabricating segment was impacted by the price of lead.
Among industrial metals traded in London, lead posted the
biggest gain. Since the end of 1999, lead prices more than
quadrupled, leading gains among 36 exchange-traded raw materials
in the U.S., Europe and Asia.
Year
Ended December 31, 2009 Compared to Year Ended
December 31, 2008
Consolidated net sales decreased by $526.5 million, or
64.3%, to $291.7 million in the year ended
December 31, 2009, compared to consolidated net sales of
$818.2 million in the year ended December 31, 2008.
Acquisitions added $14.4 million to consolidated net sales.
Excluding acquisitions, the Company reported decreases in
average metal selling prices representing net sales of
$190.2 million and a $350.7 million decrease
attributable to lower selling volume.
Scrap
Metal Recycling
Ferrous
Sales
Ferrous sales decreased by $136.7 million, or 63.7%, to
$78.0 million in the year ended December 31, 2009,
compared to ferrous sales of $214.7 million in the year
ended December 31, 2008. Acquisitions added
$11.0 million to ferrous sales in 2009. Excluding
acquisitions, ferrous sales decreased by $147.7 million.
The decrease in ferrous sales was attributable to lower average
selling prices totaling $60.1 million and lower volume sold
of 179,200 tons amounting to $87.6 million. The average
selling price for ferrous products was approximately $254 per
ton for the year ended December 31, 2009 compared to $488
per ton for the year ended December 31, 2008.
Non-Ferrous
Sales
Non-ferrous sales decreased by $90.8 million, or 52.6%, to
$81.9 million in the year ended December 31, 2009,
compared to non-ferrous sales of $172.7 million in the year
ended December 31, 2008. Acquisitions added
$3.5 million to non-ferrous sales. Excluding acquisitions,
non-ferrous sales decreased by $94.3 million. The decrease
in non-ferrous sales was attributable to a decrease in average
selling prices amounting to $42.1 million and lower sales
volume totaling $52.2 million. The average selling price
for non-ferrous products was approximately $0.87 per pound for
the year ended December 31, 2009 compared to $1.35 per
pound for the year ended December 31, 2008.
34
Platinum
Group Metal Sales
Platinum Group Metal (PGM) sales include the sale of
catalytic converter substrate material which contains the
platinum group metals, platinum, palladium, and rhodium. PGM
sales decreased $266.9 million, or 79.4%, to
$69.4 million for the year ended December 31, 2009,
compared to $336.3 million for the year ended
December 31, 2008. The decrease in PGM sales was a result
of lower sales volumes totaling $210.3 million and lower
average selling prices totaling $56.6 million. The average
selling price for PGM material was approximately $23.04 per
pound for the year ended December 31, 2009 compared to
$42.42 per pound for the year ended December 31, 2008, a
decrease of approximately 45.7%. Total PGM sales volumes
amounted 3.0 million pounds for the year ended
December 31, 2009, compared to 7.9 million pounds sold
for the year ended December 31, 2008.
Lead
Fabricating
Sales
Lead fabrication sales decreased by $26.8 million, or
30.0%, to $62.5 million in the year ended December 31,
2009 compared to lead fabrication sales of $89.3 million in
the year ended December 31, 2008. The decrease was due to
lower average selling prices amounting to $31.4 million but
was offset by higher volume sold totaling $4.6 million. The
average selling price for lead fabricated products was
approximately $1.07 per pound for the year ended
December 31, 2009, compared to $1.61 per pound for the year
ended December 31, 2008, a decrease of approximately 33.5%.
Operating
Expenses
Operating expenses decreased by $516.5 million, or 68.3%,
to $239.6 million for the year ended December 31, 2009
compared to operating expenses of $756.1 million for the
year ended December 31, 2008. Acquisitions added
$11.3 million to operating expenses. Excluding
acquisitions, the decrease in operating expenses was due to a
$505.8 million decrease in the cost of purchased metals and
a $22.0 million decrease in other operating expenses. These
operating expense changes include decreases in wages and
benefits of $7.8 million, vehicle maintenance and repair
expenses of $4.7 million, freight charges of
$4.1 million, energy costs of $2.2 million, production
and fabricating supplies of $1.1 million, other operating
costs of $883,000 and a $1.2 million benefit from legal
settlements.
Selling,
General and Administrative
Selling, general and administrative expenses decreased by
$4.1 million, or 13.6%, to $26.0 million for the year
ended December 31, 2009, compared to $30.1 million for
the year ended December 31, 2008. Acquisitions added
$889,000 to selling, general, and administrative expenses in
2009. Excluding acquisitions, significant changes in component
expenses of selling, general and administrative costs include
decreases in wages and benefits of $1.5 million, a
reduction in reserves on uncollectible accounts receivable of
$1.1 million, office expenses of $469,000, travel expenses
of $427,000, advertising and promotional expenses of $391,000,
commission expenses of $299,000 and other selling general and
administrative costs of $893,000.
Impairment
charges
Improvements in the global economic environment and commodity
prices experienced throughout 2009 relative to the conditions
that existed in the last several months of 2008 resulted in
improved operating results in all of our reporting units.
Additionally, our market capitalization exceeded the reported
value of our net equity by $74.4 million at
December 31, 2009. We also performed a review, and where
necessary, required testing of long-lived assets. Our analysis
indicated that no impairment charges to our goodwill, other
intangibles and long-lived assets were required for the year
ending December 31, 2009. For the year ending
December 31, 2008, we recorded impairment charges of
$36.3 million to goodwill and charges of $22.8 million
for other intangible assets.
35
Depreciation
and Amortization
Depreciation and amortization expenses increased by
$0.4 million to $13.2 million, or 4.5% of sales, for
the year ended December 31, 2009, compared to
$12.8 million, or 1.6% of sales, for the year ended
December 31, 2008. Acquisitions added $1.5 million to
depreciation and amortization. Excluding acquisitions
depreciation and amortization expense decreased
$1.1 million primarily due to the impairment of amortizable
intangible assets in 2008 that were not amortized in 2009.
Operating
Income (Loss)
Operating income (loss) for the year ended December 31,
2009 increased by $53.7 million, or 134%, to
$13.7 million compared to an operating loss of
$40.0 million for the year ended December 31, 2008.
Acquisitions added $1.8 million in operating income for the
year ended December 31, 2009. Impairment charges in the
year ending December 31, 2008, not incurred in the current
year period contributed $59.0 million to the increase in
operating income. Excluding acquisitions and the absence of
impairment charges in 2009, operating income decreased by
$7.1 million. This decrease in operating income primarily
occurred in the Companys Scrap metal recycling segment
amounting to $19.0 million but was offset by increases in
operating income from the Lead fabricating segment amounting to
$10.6 million and $1.3 million in corporate and other.
Financial
and Other Income/(Expense)
Interest expense was $15.9 million, or 5.4% of sales, for
the year ended December 31, 2009, compared to
$17.4 million, or 2.1% of sales, for the year ended
December 31, 2008. The decrease in interest expense was the
result of lower average outstanding debt balances. In 2009, we
retired $70.4 million in debt through repayments and
exchanges, and issued $2.5 million in new debt.
Other (expense)/income for the year ending December 31,
2009, includes a loss of $2.0 million to adjust financial
instruments to their respective fair values as compared to
$1.9 million in income for the year ending
December 31, 2008.
We also recorded a $3.8 million loss for the year ending
December 31, 2009 compared to a loss of $3.4 million
loss for our share of Beacon Energys loss for the period
beginning July 1, 2008 (the date of deconsolidation) and
ending December 31, 2008. Our loss from Beacon for the year
ending December 31, 2009 includes a $2.6 million
write-down of the carrying value of our investment in Beacon and
$1.2 million loss for our share of Beacon Energys
loss for the year ending December 31, 2009.
For the year ending December 31, 2009, the Company recorded
an $8.1 million gain on the Convertible Note exchange
entered into with certain holders of the Companys 7%
convertible notes. No similar transaction occurred in the year
ending December 31, 2008.
Income
Taxes
For the year ended December 31, 2009, we recognized income
tax expense of $1.7 million on a loss from continuing
operations of $1.9 million resulting in an effective tax
rate of negative 91%. For the year ended December 31, 2008,
we recognized income tax benefit of $15.5 million on a loss
from continuing operations of $58.4 million resulting in an
effective income tax rate of approximately 27%. Our effective
tax rate is influenced by permanent differences between income
for tax purposes and income for book purposes such as fair value
adjustments to financial instruments, stock based compensation,
amortization of certain intangibles and changes to our valuation
reserves on state net operating loss carryforwards.
Noncontrolling
interest in Losses of Subsidiaries
The noncontrolling interest in losses of consolidated
subsidiaries for the year ending December 31, 2009 was
immaterial. The noncontrolling interest in losses of
consolidated subsidiaries totaling $413,000 for the year ending
December 31, 2008 includes $344,000 representing 53% of the
net losses on Beacon Energy for the period beginning
January 1, 2008 and ending on June 30, 2008, the date
of deconsolidation. On June 30, 2008, Beacon Energy Corp.
(now Beacon Energy Holdings, Inc.) ceased to be a consolidated
subsidiary resulting from a reduction
36
in our ownership percentage. The year ending December 31,
2008 also includes $69,000 representing 49% of the net loss of a
joint venture operation acquired with the Totalcat acquisition.
Discontinued
Operations
For the year ended December 31, 2009, we recorded income
from discontinued operations of $357,000 ($195,000 net of
income taxes), compared to a loss from discontinued operations
of $2.0 million ($1.2 million, net of income tax
benefit) for the year ending December 31, 2008.
Discontinued operations for the year ending December 31,
2009, include $500,000 in proceeds from a former lead supplier
of Gulf Coast Recycling in lieu of future potential liability
claims and a $322,000 gain on the sale of the former secondary
lead smelting and refining plant in College Grove, Tennessee.
Offsetting these gains were environmental maintenance and
response costs and legal fees for the Jernigan site in Seffner,
Florida and certain other offsite remediation in the vicinity of
Gulf Coasts former smelting facility totaling $280,000.
Environmental maintenance and response costs for the year ending
December 31, 2008 amounted to $1.5 million. We also
incurred environmental monitoring costs related to a former
secondary lead smelting and refining plant in College Grove,
Tennessee. Environmental expenses at the former College Grove
facilities amounted to $185,000 and $520,000 for the years
ending December 31, 2009 and December 31, 2008,
respectively.
On May 31, 2006, the Company sold substantially all of the
assets of its Gulf Coast Recycling, Inc. subsidiary (Gulf
Coast), until then a secondary lead smelting operation
based in Tampa, Florida. The Company will continue to incur
environmental maintenance and response costs for certain other
offsite remediation in the vicinity of Gulf Coasts former
smelting facility.
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007
Consolidated net sales increased by $484.0 million, or
145%, to $818.2 million in the year ended December 31,
2008, compared to consolidated net sales of $334.2 million
in the year ended December 31, 2007. Acquisitions during
the year ending December 31, 2008 added $465.2 million
to consolidated net sales. Excluding acquisitions, the Company
reported increases in average metal selling prices representing
$38.8 million. The higher average selling prices were
offset by a $20.0 million decrease attributable to lower
selling volume.
Scrap
Metal Recycling
Ferrous
Sales
Ferrous sales increased by $136.0 million, or 173%, to
$214.7 million in the year ended December 31, 2008,
compared to ferrous sales of $78.7 million in the year
ended December 31, 2007. Acquisitions during the year
ending December 31, 2008 added $118.4 million to
ferrous sales. Excluding acquisitions, ferrous sales increased
by $17.6 million. The increase in ferrous sales was
attributable to higher average selling prices totaling
$37.0 million which was offset by a reduction in volume
sold of 70,500 tons amounting to $19.4 million. The average
selling price for ferrous products was approximately $488 per
ton for the year ended December 31, 2008 compared to $275
per ton for the year ended December 31, 2007.
Non-Ferrous
Sales
Non-ferrous sales increased by $43.7 million, or 33.9%, to
$172.7 million in the year ended December 31, 2008,
compared to non-ferrous sales of $129.0 million in the year
ended December 31, 2007. Acquisitions during the year
ending December 31, 2008 added $46.3 million to
non-ferrous sales. Excluding acquisitions, non-ferrous sales
decreased by $2.6 million. The decrease in non-ferrous
sales was attributable to a decrease in average selling prices
amounting to $7.1 million but was offset by an increase in
volume totaling $4.5 million. The average selling price for
non-ferrous products was approximately $1.35 per pound for the
year ended December 31, 2008 compared to $1.47 per pound
for the year ended December 31, 2007.
Platinum
Group Metal Sales
Platinum Group Metal (PGM) sales include the sale of
catalytic converter substrate material which contains the
platinum group metals, platinum, palladium, and rhodium. PGM
sales increased $303.1 million, or 913%, to
37
$336.3 million for the year ended December 31, 2008,
compared to $33.2 million for the year ended
December 31, 2007. Acquisitions added $295.4 million
to PGM sales for the year ended December 31, 2008.
Excluding acquisitions PGM sales increased $7.7 million.
The increase in PGM sales resulted from $4.3 million of
additional volume sold and higher average selling prices
totaling $3.4 million. Including acquisitions, the average
selling price for PGM material was approximately $42.42 per
pound for the year ended December 31, 2008 compared to
$34.17 per pound for the year ended December 31, 2007, an
increase of approximately 24.1%. Total PGM sales volumes
amounted 7.9 million pounds for the year ended
December 31, 2008, including 6.8 million pounds sold
by new acquisitions, compared to 970,000 pounds for the year
ended December 31, 2007.
Lead
Fabricating
Sales
Lead fabrication sales decreased by $4.0 million, or 4.3%,
to $89.3 million in the year ended December 31, 2008
compared to lead fabrication sales of $93.3 million in the
year ended December 31, 2007. The decrease was due to lower
volume sold totaling $9.5 million but was offset by higher
average selling prices amounting to $5.5 million. The
average selling price for lead fabricated products was
approximately $1.61 per pound for the year ended
December 31, 2008, compared to $1.51 per pound for the year
ended December 31, 2007, an increase of approximately 6.6%.
Operating
Expenses
Operating expenses increased by $477.8 million, or 172%, to
$756.1 million for the year ended December 31, 2008
compared to operating expenses of $278.3 million for the
year ended December 31, 2007. Acquisitions in the year
ended December, 2008 added $426.5 million to the increase
in operating expenses. Excluding acquisitions, the increase in
operating expenses was due to a $48.4 million increase in
the cost of purchased metals, which included $7.8 million
in inventory write downs to market value, and a
$2.9 million increase in other operating expenses. These
operating expense changes include increases in energy costs of
$1.5 million, equipment and vehicle maintenance and repair
expenses of $997,000, production and fabricating supplies of
$413,000, environmental control expenses of $333,000, rent and
occupancy costs of $238,000 and waste and disposal fees of
$234,000, freight charges of $226,000 and other operating
expenses of $1.0 million. These costs were offset by
reductions in freight charges of $1.4 million from reduced
ferrous shipments in non-acquisition subsidiaries and wages and
benefits of $424,000.
Selling,
General and Administrative
Selling, general and administrative expenses increased by
$9.8 million, or 48.3%, to $30.1 million for the year
ended December 31, 2008, compared to $20.3 million for
the year ended December 31, 2007. Acquisitions during the
year ending December 31, 2008 added $7.0 million to
selling, general, and administrative expenses. Excluding
acquisitions, increases in selling, general and administrative
costs include wages and benefits of $1.7 million,
professional and consulting expenses of $632,000 and other
selling general and administrative costs of $468,000.
Impairment
charges
Due to the economic environment, changes to the Companys
operating results and forecasts, and a significant reduction in
the Companys market capitalization, the carrying value of
the Companys goodwill and certain of its other long-lived
assets exceeded their respective fair value at December 31,
2008. As a result of the goodwill and other long-lived asset
impairment testing, we recorded impairment charges of
$36.3 million to goodwill and charges of $22.8 million
for other intangible assets for the year ending
December 31, 2008. If current economic and equity market
conditions persist, it is possible that we could have additional
material impairment charges against earnings in a future period.
No impairment charges were required for the year ending
December 31, 2007.
Depreciation
and Amortization
Depreciation and amortization expenses increased by
$6.5 million to $12.8 million, or 1.6% of sales, for
the year ended December 31, 2008, compared to
$6.3 million, or 1.9% of sales, for the year ended
December 31, 2007.
38
Acquisitions during the year ended December 31, 2008 added
$5.2 million to depreciation and amortization. Excluding
acquisitions, the remaining $1.3 million increase in
depreciation expense is due to additions to property and
equipment made in the preceding twelve months.
Operating
Income (Loss)
Operating income (loss) for the year ended December 31,
2008 decreased by $69.3 million, or 236%, to a loss of
$39.9 million compared to operating income of
$29.4 million for the year ended December 31, 2007.
Impairment charges contributed $59.0 million to the
decrease in operating income. Acquisitions added
$22.4 million in operating income for the year ended
December 31, 2008. Excluding acquisitions, operating income
decreased by $32.7 million. The decreases in operating
income were incurred in the following segments; Lead fabricating
$21.1 million, Scrap metal recycling $8.5 million and
the remaining $3.1 million in corporate and other.
Financial
and Other Income/(Expense)
Interest expense was $17.4 million, or 2.1% of sales,
during the year ended December 31, 2008, compared to
$5.9 million, or 1.8% of sales, during the year ended
December 31, 2007. The increase in interest expense during
2008 was the result of higher average outstanding debt balances.
In 2008, we issued $117.2 million in new debt to acquire
businesses.
Other income for the year ending December 31, 2008,
includes income of $6.7 million to adjust the put warrant
liability offset by expense of $4.7 million to adjust the
make-whole agreement to their respective fair values. The
warrants were issued in connection with common stock offering in
April 2008 and the $100 million convertible note offering
in May 2008. The obligation for make-whole agreements was issued
in connection with the Pittsburgh acquisition on May 1,
2008. The warrants and make-whole agreements were not
outstanding in the year ending December 31, 2007.
We also recorded a $3.4 million loss for our 36.6% share of
Beacon Energys loss for the period beginning July 1,
2008 (the date of deconsolidation) and ending December 31,
2008. For the year ending December 31, 2007 and for January
1 through June 30, 2008 Beacon was included in consolidated
results and included in operating income (loss).
Income
Taxes
For the year ended December 31, 2008, we recognized income
tax benefit of $15.5 million, resulting in an effective
income tax rate of approximately 27%. For the year ended
December 31, 2007, we recognized income tax expense of
$8.7 million, resulting in an effective income tax rate of
approximately 36%. The Companys tax benefit in the year
ending December 31, 2008 is primarily the result of
operating losses incurred in the period.
Noncontrolling
Interest in Losses of Subsidiaries
The noncontrolling interest in losses of consolidated
subsidiaries for the year ending December 31, 2008 includes
$344,000 representing 53% of the net losses on Beacon Energy for
the period beginning January 1, 2008 and ending on
June 30, 2008, the date of deconsolidation. On
June 30, 2008, Beacon Energy Corp. (now Beacon Energy
Holdings, Inc.) ceased to be a consolidated subsidiary resulting
from a reduction in the Companys ownership percentage. The
year ending December 31, 2008 also includes $69,000
representing 49% of the net loss of a joint venture operation
acquired with the Totalcat acquisition in July of 2007 and
accounted for on the equity method. For the year ending
December 31, 2007, noncontrolling interests include
$366,000 representing 47% of the net loss of Beacon for the year
end December 31, 2007 and. The year ended December 31,
2007 also includes $9,000 representing 50% of the net income of
a joint venture operation acquired with the Totalcat acquisition
in July of 2007 and accounted for on the equity method.
Discontinued
Operations
For the year ended December 31, 2008, we recorded a loss
from discontinued operations of $1.2 million, compared to a
discontinued operations loss for the year ended
December 31, 2007 of $918,000. Discontinued
39
operations consist of environmental maintenance and response
costs for the Jernigan site in Seffner, Florida and certain
other offsite remediation in the vicinity of Gulf Coasts
former smelting facility and environmental monitoring costs
related to a former secondary lead smelting and refining plant
in College Grove, Tennessee. Environmental expenses at the
former Gulf Coast and College Grove facilities amounted to
$907,000 and $322,000 net of income taxes respectively for
the year ending December 31, 2008 compared to $949,000 and
a gain of $31,000 on the sale of scrapped equipment net of
income taxes respectively at the former Gulf Coast and College
Grove facilities.
On May 31, 2006, the Company sold substantially all of the
assets of its Gulf Coast Recycling, Inc. subsidiary (Gulf
Coast), until then a secondary lead smelting operation
based in Tampa, Florida. The Company will continue to incur
environmental maintenance and response costs for certain other
offsite remediation in the vicinity of Gulf Coasts former
smelting facility and environmental monitoring costs related to
a former secondary lead smelting and refining plant in College
Grove, Tennessee.
QUARTERLY
FINANCIAL INFORMATION
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Quarter
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Quarter
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Quarter
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Quarter
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Quarter
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Quarter
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Quarter
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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Ended
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3/31/2008
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6/30/2008
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9/30/2008
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12/31/2008
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3/31/2009
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6/30/2009
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9/30/2009
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12/31/2009
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(Unaudited)
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(In thousands, except share and per share data)
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Selected Income Statement Data:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
170,548
|
|
|
$
|
295,062
|
|
|
$
|
288,043
|
|
|
$
|
64,542
|
|
|
$
|
53,284
|
|
|
$
|
62,348
|
|
|
$
|
91,480
|
|
|
$
|
84,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
148,248
|
|
|
|
249,692
|
|
|
|
274,397
|
|
|
|
83,762
|
|
|
|
43,473
|
|
|
|
50,880
|
|
|
|
72,982
|
|
|
|
72,312
|
|
Selling, general and administrative expenses
|
|
|
7,154
|
|
|
|
11,804
|
|
|
|
3,592
|
|
|
|
7,596
|
|
|
|
6,309
|
|
|
|
5,399
|
|
|
|
7,578
|
|
|
|
6,708
|
|
Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,027
|
|
|
|
3,494
|
|
|
|
3,305
|
|
|
|
4,038
|
|
|
|
3,287
|
|
|
|
3,307
|
|
|
|
3,174
|
|
|
|
3,472
|
|
Gain on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157,429
|
|
|
|
264,990
|
|
|
|
281,294
|
|
|
|
154,439
|
|
|
|
53,069
|
|
|
|
59,586
|
|
|
|
83,734
|
|
|
|
81,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income(Loss)
|
|
$
|
13,119
|
|
|
$
|
30,072
|
|
|
$
|
6,749
|
|
|
$
|
(89,897
|
)
|
|
$
|
215
|
|
|
$
|
2,762
|
|
|
$
|
7,746
|
|
|
$
|
2,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from continuing operations
|
|
$
|
6,316
|
|
|
$
|
8,244
|
|
|
|
9,705
|
|
|
$
|
(67,108
|
)
|
|
$
|
(3,709
|
)
|
|
$
|
1,064
|
|
|
|
5,059
|
|
|
$
|
(6,054
|
)
|
Discontinued operations
|
|
|
(405
|
)
|
|
|
(385
|
)
|
|
|
(43
|
)
|
|
|
(397
|
)
|
|
|
158
|
|
|
|
24
|
|
|
|
(5
|
)
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
5,911
|
|
|
|
7,859
|
|
|
|
9,662
|
|
|
|
(67,505
|
)
|
|
|
(3,351
|
)
|
|
|
1,088
|
|
|
|
5,054
|
|
|
|
(6,036
|
)
|
Noncontrolling interests
|
|
|
158
|
|
|
|
252
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) attributable to Company
|
|
$
|
6,069
|
|
|
$
|
8,111
|
|
|
$
|
9,664
|
|
|
$
|
(67,504
|
)
|
|
$
|
( 3,551
|
)
|
|
$
|
1,088
|
|
|
$
|
5,054
|
|
|
$
|
(6,036
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
3/31/2008
|
|
|
6/30/2008
|
|
|
9/30/2008
|
|
|
12/31/2008
|
|
|
3/31/2009
|
|
|
6/30/2009
|
|
|
9/30/2009
|
|
|
12/31/2009
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.24
|
|
|
$
|
0.27
|
|
|
$
|
(1.85
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
(0.13
|
)
|
Discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.19
|
|
|
$
|
0.23
|
|
|
$
|
0.27
|
|
|
$
|
(1.86
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss)from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.23
|
|
|
$
|
0.25
|
|
|
$
|
(1.85
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
(0.13
|
)
|
Discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.19
|
|
|
$
|
0.22
|
|
|
$
|
0.25
|
|
|
$
|
(1.86
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.03
|
|
|
$
|
0.12
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,339,468
|
|
|
|
35,810,875
|
|
|
|
36,086,982
|
|
|
|
36,281,432
|
|
|
|
36,427,913
|
|
|
|
38,295,781
|
|
|
|
43,534,362
|
|
|
|
46,409,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
32,787,293
|
|
|
|
41,057,092
|
|
|
|
43,679,145
|
|
|
|
36,281,432
|
|
|
|
36,427,913
|
|
|
|
38,354,045
|
|
|
|
43,534,362
|
|
|
|
46,409,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIQUIDITY
AND CAPITAL RESOURCES
The Company has certain contractual obligations and commercial
commitments to make future payments. The following table
summarizes these future obligations and commitments as of
December 31, 2009 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
4-5
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Debt Obligations(1)
|
|
$
|
113,239
|
|
|
$
|
538
|
|
|
$
|
314
|
|
|
$
|
30,978
|
|
|
$
|
81,409
|
|
Capital Lease Obligations(2)
|
|
|
3,554
|
|
|
|
1,450
|
|
|
|
1,695
|
|
|
|
263
|
|
|
|
146
|
|
Operating Lease Obligations
|
|
|
3,905
|
|
|
|
1,518
|
|
|
|
2,088
|
|
|
|
186
|
|
|
|
113
|
|
Obligations under make-whole agreements(3)
|
|
|
1,204
|
|
|
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations under earnout agreements(4)
|
|
|
133
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of Credit
|
|
|
1,522
|
|
|
|
1,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental Obligations
|
|
|
2,012
|
|
|
|
662
|
|
|
|
252
|
|
|
|
75
|
|
|
|
1,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
125,569
|
|
|
|
7,027
|
|
|
|
4,349
|
|
|
|
31,502
|
|
|
|
82,691
|
|
Proforma effect of new Credit Agreement(5)
|
|
|
|
|
|
|
6,526
|
|
|
|
6,000
|
|
|
|
(12,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total after effect of new Credit Agreement
|
|
$
|
125,569
|
|
|
$
|
13,553
|
|
|
$
|
10,349
|
|
|
$
|
18,976
|
|
|
$
|
82,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Approximately 27% of debt obligations as of December 31,
2009 accrued interest at a variable rate (the lenders base
rate plus a margin). The remaining 73% of debt obligations as of
December 31, 2009 required accrued interest at fixed rates
(averaging 8.00% or less). Interest expense on debt obligation
and capital lease obligations for 2010 is estimated to
approximate $10.4 million calculated by multiplying the
outstanding principal balance by the obligations
applicable interest rate in effect at December 31, 2009.
Interest expense for 2010 and thereafter will increase or
decrease based on the amount of outstanding borrowings and
fluctuations in market based interest rates. |
|
(2) |
|
Includes capital leases and installment notes. |
41
|
|
|
(3) |
|
Represents liability in connection with obligations to certain
stockholders to maintain the value of stock provided in
consideration of other assets. |
|
(4) |
|
Represents unpaid balance of earnout liability as of
December 31, 2009 to former owner of Annaco, Inc. earned
for results of Metalico Akron, Inc. for the year ending
December 31, 2008. This amount was paid in January 2010. |
|
(5) |
|
After giving effect to the new Credit Agreement entered into on
March 2, 2010, 27% of debt obligations will still accrue
interest at a variable rate (the lenders base rate plus a
margin). Interest expense on debt obligations and capital lease
obligations for 2010 is estimated to be approximately
$7.5 million calculated by multiplying the outstanding
principal balance by the obligations applicable interest
rate in effect at December 31, 2009 on debt balances
unaffected by the new Credit Agreement, and the effective rates
as of March 2, 2010 on the amounts refinanced by the new
credit agreement. Interest expense for 2010 and thereafter will
increase or decrease based on the amount of outstanding
borrowings and fluctuations in market based interest rates. |
Cash
Flows
For the year ended December 31, 2009, we used
$25.7 million in our operating activities compared to
$58.7 million generated in the year ending
December 31, 2008. For the year ended December 31,
2009, a net loss of $3.4 million and changes in working
capital components of $39.2 million was offset by net
non-cash items totaling $16.9 million. Non-cash items
included $14.5 million in depreciation and amortization,
$2.5 million in stock-based compensation expense,
$2.0 million in fair value adjustments to financial
instruments, $3.5 million in changes to deferred income
taxes, $4.2 million for our share of Beacon Energys
loss and other non-cash items totaling $398,000. These positive
non-cash items were offset by $8.1 million gain on debt
extinguishment, $1.3 million in gain recorded in
settlements of litigation and $866,000 gain recorded on business
acquisitions. Changes for reduction in working capital items
include $20.3 million for increases in inventory,
$10.0 million in increased accounts receivable balances and
$15.0 million in reductions in accounts payable and accrued
expenses. These working capital items were offset by
$6.1 million in decreases in prepaid and other items. For
the year ended December 31, 2008, a net loss of
$43.7 million was offset by net non-cash items totaling
$73.7 million and changes in working capital of
$28.6 million. Non-cash items included $59.0 million
of impairment charges to goodwill and other intangibles,
$13.6 million in depreciation and amortization,
$7.8 million in inventory markdowns to market value,
$6.2 million in reserve allowances for uncollectible
receivables and vendor advances and $3.4 million for our
share of Beacon Energys loss. These positive non-cash
items were offset by $16.3 million in deferred income
taxes. Changes for reduction in working capital items include
$24.5 million for reductions in inventory,
$23.8 million in reduced accounts receivable balances and
$309,000 for reductions in prepaid and other items. These
working capital items were offset by $20.0 million in
reductions in accounts payable and accrued expenses. For the
year ended December 31, 2007, net income of
$14.8 million and net non-cash items totaling
$6.8 million, comprised primarily of depreciation and
amortization, were offset by a $29.6 million change in
components of working capital. The changes in working capital
included an increase in accounts receivable of
$15.1 million due to higher sales, an increase in
inventories of $17.2 due to higher commodity prices and a
$1.9 million increase in prepaid expenses. These items were
offset by a $4.6 million increase in accounts payable and
accrued expenses.
We used $5.4 million in net cash for investing activities
for the year ended December 31, 2009 compared to using net
cash of $116.3 million for the year ended December 31,
2008. For the year ended December 31, 2009, we paid
$2.5 million to acquire businesses, and $3.0 million
for purchases of equipment and capital improvements. For the
year ended December 31, 2008 we paid $107.2 million in
cash to acquire businesses, $11.1 million for purchases of
equipment and capital improvements and invested $600,000 in
biofuel related projects. These uses were offset by a
$1.9 million reduction in restricted cash, a $600,000
change to other assets and we received $118,000 for the sale of
equipment. For the year ended December 31, 2007 we paid
$75.8 million in cash to acquire businesses,
$11.6 million for purchases of equipment and capital
improvements and restricted an additional $6.1 million for
investments in biofuel activities and purchased a 40% interest
in a biofuel processing concern for $3.6 million through
Beacon Energy Corp. These amounts were offset by changes in
other assets totaling $2.2 million.
For the year ended December 31, 2009, we used
$26.9 million in financing activities compared to
generating $117.3 million of net cash during the year ended
December 31, 2008. For the year ending December 31,
2009, we repaid $50.3 million of debt, net of new
borrowings and paid $1.4 million in debt issue costs on
amendments to our
42
loan agreements. These amounts were offset by $24.8 million
in proceeds from the sale of our common stock. For the year
ending December 31, 2008, we generated $125.3 million
from new borrowings primarily the issuance of
$100.0 million in 7% convertible notes, $28.5 million
from the sale of common stock and $677,000 in proceeds from the
exercise of common stock options. Our former Beacon Energy
subsidiary received $3.9 million for the sale of its common
stock and also received $1.7 million from the sale of
convertible notes. Debt repayments totaled $37.1 million
and we paid $5.8 million in debt issue costs primarily
related to the $100.0 million convertible note offering.
During the year ended December 31, 2007 we generated
$104.8 million from financing activities comprised of $77.7
in proceeds from new borrowings, $34.0 million in proceeds
for the issuance of Metalico common stock, both used primarily
to acquire businesses, an additional $3.6 million in
proceeds from the sale of Beacon Energy common stock and
$859,000 in proceeds from the exercise of options and warrants
to purchase common stock. These amounts were offset by
$8.8 million in principal payments on debt and
$2.6 million of debt issue costs incurred.
Financing
and Capitalization
The Amended and Restated Loan and Security Agreement (the
Loan Agreement) dated as of July 3, 2007, by
and among the Company and certain of its subsidiaries as
borrowers and Wells Fargo Foothill, Inc., as arranger and
administrative agent, and the lenders party thereto, as amended,
consisted as of December 31, 2009 of senior secured credit
facilities in the aggregate amount of $30.0 million,
subject to a borrowing base, with a reserve of
$15.0 million. Outstanding balances on the credit facility
accrued interest at the Base Rate (a rate determined by
reference to the prime rate) plus .25% (effective rate of 4.5%
at December 31, 2009) or, at the Companys
election, the current LIBOR rate plus 2%.
As of December 31, 2009, we had approximately
$13.5 million of borrowing availability under the Loan
Agreement. No balance was outstanding under the Loan Agreement
at December 31, 2009.
Under the terms of the Loan Agreement, the Company was
responsible to the lenders for a monthly servicing fee, a
contingent anniversary fee each May if its EBITDA for the fiscal
year immediately prior to such anniversary date was less than
its projected EBITDA for such fiscal year, unused
line-of-credit
and
letter-of-credit
fees equal to a percentage of the average daily unused portion
of the revolving facility, and certain other fees. Lender fees
(excluding those capitalized as debt issue costs in year of
issuance) are included as a component of interest expense in the
period assessed.
On July 3, 2007, we entered into a financing agreement (the
Financing Agreement) with Ableco Finance, LLC
(Ableco) for two term loans in the respective
amounts of $32.0 million and $18.0 million, both
maturing in six years. On January 25, 2008, we entered into
an amendment to the Financing Agreement providing for an
additional term loan in the amount of $17.1 million, also
maturing in six years.
A summary of the debt reductions to our principal creditors and
an estimate of annualized interest savings is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
Rate as of
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
Annual
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
Repayments
|
|
|
December 31,
|
|
|
Interest
|
|
|
|
2009
|
|
|
2009
|
|
|
and Exchanges
|
|
|
2009
|
|
|
Savings(1)
|
|
|
Wells Fargo Foothill Term loans
|
|
|
4.50
|
%
|
|
$
|
10,614
|
|
|
$
|
(10,614
|
)
|
|
$
|
|
|
|
$
|
478
|
|
Ableco Finance, LLC
|
|
|
14.00
|
%
|
|
|
67,150
|
|
|
|
(36,520
|
)
|
|
|
30,630
|
|
|
|
5,113
|
|
7% Convertible Notes
|
|
|
7.00
|
%
|
|
|
100,000
|
|
|
|
(18,390
|
)
|
|
|
81,610
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
177,764
|
|
|
$
|
(65,524
|
)
|
|
$
|
112,240
|
|
|
$
|
6,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Calculated by multiplying the effective annual interest rate by
the principal reductions made by repayments and debt for equity
exchanges. |
On March 2, 2010, we entered into a Credit Agreement (the
Credit Agreement) with a syndicate of lenders led by
JPMorgan Chase Bank, N.A. The new three-year facility consists
of senior secured credit facilities in the aggregate amount of
$65.0 million, including a $57.0 million revolving
line of credit (the Revolver) and an
43
$8.0 million machinery and equipment term loan facility.
The Revolver provides for revolving loans which, in the
aggregate, are not to exceed the lesser of $57.0 million or
a Borrowing Base amount based on specified
percentages of eligible accounts receivable and inventory and
bears interest at the Base Rate (a rate determined
by reference to the prime rate) plus 1.25% or, at our election,
the current LIBOR rate plus 3.5%. The term loan bears interest
at the Base Rate plus 2% or, at our election, the current LIBOR
rate plus 4.25%. Under the Agreement, we will be subject to
certain operating covenants and will be restricted from, among
other things, paying cash dividends, repurchasing its common
stock over certain stated thresholds, and entering into certain
transactions without the prior consent of the lenders. In
addition, the Agreement contains certain financial covenants,
including minimum EBITDA, fixed charge coverage ratio, and
capital expenditure covenants. Obligations under the Agreement
are secured by substantially all of our assets other than real
property. The proceeds of the Agreement are to be used for
present and future acquisitions, working capital, and general
corporate purposes.
Upon the effectiveness of the Credit Agreement described in the
preceding paragraph, we terminated the Loan Agreement and the
Financing Agreement and repaid outstanding indebtedness under
the Loan Agreement in the aggregate principal amount of
approximately $13.5 million and under the Financing
Agreement in the aggregate principal amount of approximately
$30.6 million. Outstanding balances under the Loan
Agreement and the Financing Agreement were paid with borrowings
under the Credit Agreement and available cash.
On April 23, 2008, the Company entered into a Securities
Purchase Agreement with accredited investors (Note
Purchasers) which provided for the sale of
$100.0 million of Senior Unsecured Convertible Notes (the
Notes) convertible into shares of our common stock
(Note Shares). The initial and current conversion
price of the Notes is $14.00 per share. The Notes bear interest
at 7% per annum, payable in cash, and will mature in April 2028.
In addition, the Notes contain (i) an optional repurchase
right exercisable by the Note Purchasers on the sixth, eighth
and twelfth anniversary of the date of issuance of the Notes,
whereby each Note Purchaser will have the right to require the
Company to redeem the Notes under certain circumstances, and
(ii) an optional redemption right exercisable by the
Company beginning on May 1, 2011, the third anniversary of
the date of issuance of the Notes, and ending on the day
immediately prior to the sixth anniversary of the date of
issuance of the Notes, whereby the Company shall have the option
but not the obligation to redeem the Notes at a redemption price
equal to 150% of the principal amount of the Notes to be
redeemed plus any accrued and unpaid interest thereon, limited
to 30% of the aggregate principal amount of the Notes as of the
issuance date, and from and after the sixth anniversary of the
date of issuance of the Notes, the Company shall have the option
to redeem any or all of the Notes at a redemption price equal to
100% of the principal amount of the Notes to be redeemed plus
any accrued and unpaid interest thereon.
The Notes also contain (i) certain repurchase requirements
upon a change of control, (ii) make whole provisions upon a
change of control, (iii) weighted average
anti-dilution protection, subject to certain exceptions,
(iv) an interest make whole provision in the event that the
Note Purchasers are forced to convert their Notes between the
third and sixth anniversary of the date of issuance of the Notes
whereby the Note Purchasers would receive the present value
(using a 3.5% discount rate) of the interest they would have
earned should their Notes so converted had been outstanding from
such forced conversion date through the sixth anniversary of the
date of issuance of the Notes, and (v) a debt incurrence
covenant which would limit the ability of the Corporation to
incur debt, under certain circumstances.
Convertible
Note Exchanges
On April 23, 2009, the Company entered into five individual
but essentially uniform Exchange Agreements (collectively the
Exchange Agreements) with certain holders of its
senior unsecured 7% Convertible Notes due April 30,
2028 (the Convertible Notes) providing for a
two-tranche exchange of a portion of the outstanding Convertible
Notes for common equity in the Company. In the first tranche,
closed April 24, 2009, the Company exchanged
1,245,354 shares of its common stock (after rounding) for
$5.0 million aggregate principal amount of the Convertible
Notes valued at 58% of face amount of Convertible Notes (the
Exchange Rate) based on a per share price of $2.33.
As a result of the consummation of the first tranche of the
exchanges, the Company recognized a $1.7 million gain on
debt extinguishment net of unamortized discounts and deferred
financing costs.
In the second tranche, effected on June 4, 2009, the
Company exchanged 2,463,552 shares of its common stock for
principal debt in the aggregate amount of $10.0 million
with the participating holders valued at an Exchange
44
Rate of 61% based on a per share price of $2.48. The terms of
the second tranche, specifically the effective date, the face
amount of Convertible Notes to be exchanged and the Exchange
Rate, were modified under the terms of five individual but
essentially uniform amendments dated June 4, 2009 to the
Exchange Agreements. As a result of the consummation of the
second tranche of the exchanges, the Company recognized a
$3.2 million gain on debt extinguishment, net of
unamortized discounts and deferred financing costs.
The Exchange Agreements also provided for
true-ups
of additional shares to be issued or additional debt retirement
based on the volume weighted average price of the Companys
common stock during a twenty-five-day trading period following
the first tranche and a thirty-five day trading period for the
second tranche. The participating noteholders were also entitled
to certain interim
true-ups
during each trading period if the Companys stock price
declined below certain levels, which did not occur. As a result
of the
true-up for
the first tranche, the Company retired an additional $75,000 in
principal under the Convertible Notes, resulting in an
additional $70,000 gain on debt extinguishment, net of
unamortized discounts and deferred financing costs, and as a
result of the
true-up for
the second tranche, the Company retired an additional
$3.3 million in principal under the Convertible Notes,
resulting in an additional $3.0 million gain on debt
extinguishment, net of fees paid, unamortized discounts and
deferred financing costs. No additional shares of stock were
issued in connection with either tranches final
true-up.
The Company received no cash proceeds as a result of the
exchanges of its common stock for Convertible Notes and
recognized a total of $8.1 million in gain on debt
extinguishment. All Convertible Notes surrendered in the
exchanges were retired and cancelled.
Future
Capital Requirements
As of December 31, 2009, we had $4.9 million in cash
and cash equivalents, availability under the Loan Agreement of
$13.5 million and total working capital of
$70.1 million. As of December 31, 2009, our current
liabilities totaled $29.4 million. We expect to fund our
current working capital needs, interest payments and capital
expenditures over the next twelve months with cash on hand and
cash generated from operations, supplemented by borrowings
available under the Loan Agreement and potentially available
elsewhere, such as vendor financing, manufacturer financing,
operating leases and other equipment lines of credit that are
offered to us from time to time. We may also access equity and
debt markets for working capital, to restructure current debt
and for possible acquisitions.
Improvements in general economic conditions and operating
results have allowed the Company to reinstate salary reductions
and increase its workforce through rehiring by approximately 7%
from a low point in April 2009.
Historically, the Company has entered into negotiations with its
lenders when it was reasonably concerned about potential
breaches and prior to the occurrences of covenant defaults. The
Company has renegotiated principal payments, interest expense
and fees as well as the requisite performance levels under the
covenants. A breach of any of the covenants contained in the
lending agreements could result in default under such
agreements. In the event of a default, a lender could refuse to
make additional advances under the revolving portion of a credit
facility, could require the Company to repay some or all of its
outstanding debt prior to maturity,
and/or could
declare all amounts borrowed by the Company, together with
accrued interest, to be due and payable. In the event that this
occurs, the Company may be unable to repay all such accelerated
indebtedness, which could have a material adverse impact on its
financial position and operating performance.
If necessary, the Company could use its existing cash balances
or attempt to access equity and debt markets or to obtain new
financing arrangements with new lenders or investors as
alternative funding sources to restructure current debt. Any
issuance of new equity could dilute current shareholders. Any
new debt financing could be on terms less favorable than those
of our existing financing and could subject us to new and
additional covenants. Decisions by lenders and investors to
enter into such transactions with the Company would depend upon
a number of factors, such as the Companys historical and
projected financial performance, compliance with the terms of
its current or future credit agreements, industry and market
trends, internal policies of prospective lenders and investors,
and the availability of capital. No assurance can be had that
the Company would be successful in obtaining funds from
alternative sources.
45
Off-Balance
Sheet Arrangements
Other than operating leases, we do not have any significant
off-balance sheet arrangements that are likely to have a current
or future effect on our financial condition, result of
operations or cash flows.
Beacon
Energy Investment
As of December 31, 2009, the Company owned 33.1% of the
outstanding stock of Beacon Energy Holdings, Inc.
(Beacon). We record our investment in Beacon under
the equity method. The Company has invested $5.0 million in
Beacon as of December 31, 2009. The consolidated statements
of operations for the year ended December 31, 2008 include
Beacon as a consolidated entity for the period beginning
January 1, 2008 and ending June 30, 2008, the date of
deconsolidation and for the full year ending December 31,
2007. As of December 31, 2009, we had written off the full
amount of our investment in Beacon due to the expiration of
federal renewable energy tax credits, low product demand, rising
feedstock costs and diminished working capital balances at year
end. The Company has no interest in the direct sales, purchases
or other transactions and is not party to any guarantee
arrangement with respect to the liabilities of Beacon.
Acquisitions
On December 8, 2009, our Metalico Youngtown, Inc.
(Youngstown) subsidiary closed a purchase of
substantially all of the operating assets of Youngtown
Iron & Metal, Inc (YIM) and Atlas
Recycling Inc. (ARI) two scrap related scrap
recycling facilities principally located in Youngtown, Ohio. The
acquisition includes all inventory and equipment including a
Newell
80-104 auto
shredder located directly adjacent to YIMs key consumer.
The acquisition will also include all real estate owned by
affiliates of the sellers and used in their businesses. We
expect to complete the acquisition by closing on the purchase of
the real estate in the near future.
Contingencies
In March 2005, Metalico, Inc.s subsidiary in Tampa,
Florida, Gulf Coast Recycling, Inc. (Gulf Coast)
received an information request and notice of potential
liability from the EPA (the Request and Notice)
regarding contamination at a site in Seffner, Florida (the
Jernigan Site) alleged to have occurred in the
1970s. Gulf Coast retained any potential liability for the
Jernigan Site when it sold its assets on May 31, 2006. The
Request and Notice also identified nine other potentially
responsible parties (PRPs) in addition to Gulf
Coast. Effective October 3, 2006, EPA, Gulf Coast, and one
other PRP entered into a settlement agreement for the northern
portion of the Jernigan Site (the Northern Settlement
Agreement) and EPA, Gulf Coast, and another PRP entered
into a settlement agreement for the southern portion of the
Jernigan Site (the Southern Settlement Agreement)
providing in each case for the remediation of the affected
property. Gulf Coast retained a consulting firm to perform the
remediation at a cost of approximately $3.3 million, for
both portions of the Jernigan Site. At December 31, 2008,
the remediation project was substantially completed. The Company
estimates future maintenance costs for the Jernigan Site at
$753,000. The accompanying financial statements do not include
any receivables that might result from any additional
settlements or recoveries.
In connection with the acquisition of Metalico Akron Inc. on
July 3, 2007, the Company was required to make an annual
payment to the sellers for the fiscal years 2007, 2008, and 2009
if the acquired assets performed over a predetermined income
level during such periods. When such payments are made, it will
increase the total purchase price and be recorded as an increase
to goodwill. At December 31, 2008, the Company recorded a
liability of $5.3 million for the anticipated payment to be
made based on Metalico Akrons year ending
December 31, 2008 performance. At December 31, 2009 a
balance of $133,000 remained on the 2008 liability and was
subsequently paid in January of 2010. For the years ending
December 31, 2009 and 2007 no such payment was required.
We are involved in certain other legal proceedings and
litigation arising in the ordinary course of business. In the
opinion of management, the outcome of such other proceedings and
litigation will not materially affect the Companys
financial position, results of operations, or cash flows.
The Company does not carry, and does not expect to carry for the
foreseeable future, significant insurance coverage for
environmental liability (other than conditions existing at the
Syracuse facility prior to its acquisition by
46
the Company) because the Company believes that the cost for such
insurance is not economical. However, we continue to monitor
products offered by various insurers that may prove to be
practical. Accordingly, if the Company were to incur liability
for environmental damage in excess of accrued environmental
remediation liabilities, its financial position, results of
operations, and cash flows could be materially adversely
affected.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We are exposed to financial risk resulting from fluctuations in
interest rates and commodity prices. We seek to minimize these
risks through regular operating and financing activities.
Interest
rate risk
We are exposed to interest rate risk on our floating rate
borrowings. As of December 31, 2009, $30.6 million of
our outstanding debt consisted of variable rate borrowings
pursuant to a Financing Agreement with Ableco Finance LLC that
has since been terminated. We also had in place as of
December 31, 2009 an Amended and Restated Loan Agreement
with Wells Fargo Foothill, Inc. Borrowings under these credit
facilities accrued interest at either the prime rate of interest
plus a margin or LIBOR plus a margin. We entered into an
interest rate swap contract to mitigate our exposure to
fluctuations in the interest rate on up to $20 million of
the Wells Fargo Foothill revolving facility portion of our
indebtedness. Due to the minimal outstanding balances
outstanding on the credit facility with Wells Fargo Foothill
during the year ended December 31, 2009, the interest rate
swap was deemed ineffective and resulted in expense of $282,000
for the year ended December 31, 2009. The interest rate
swap was liquidated in connection with the termination of the
Wells Fargo Foothill facility. The Ableco and Foothill
agreements were replaced by a Credit Agreement with JPMorgan
Chase Bank, N.A. and other lenders on March 2, 2010.
Assuming our variable borrowings were to equal the average
borrowings under our senior secured credit facility during a
fiscal year, a hypothetical increase or decrease in interest
rates by 1% would have a $306,000 effect on interest expense and
cash flow.
Commodity
price risk
We are exposed to risks associated with fluctuations in the
market price for both ferrous, non-ferrous, PGM and lead metals
which are at times volatile. See the discussion under the
section entitled Risk Factors The metals
recycling industry is highly cyclical and export markets can be
volatile located in this Annual Report. We attempt to
mitigate this risk by seeking to turn our inventories quickly as
markets allow instead of holding inventories in anticipation of
higher commodity prices. We use forward sales contracts with PGM
substrate processors to hedge against the extremely volatile PGM
metal prices. The Company estimates that if selling prices
decreased by 10% in any of the business units in which it
operates, there would not be a material write-down of any of its
reported inventory values.
Foreign
currency risk
International sales account for an immaterial amount of our
consolidated net sales and all of our international sales are
denominated in U.S. dollars. We also purchase a small
percentage of our raw materials from international vendors and
these purchases are also denominated in local currencies.
Consequently, we do not enter into any foreign currency swaps to
mitigate our exposure to fluctuations in the currency rates.
Risk
from Common stock market price
We are exposed to risks associated with the market price of our
own common stock. In connection with certain financings, we have
issued warrants that can be put to us upon a change
of control. We are required to use the value of our common stock
as an input variable to determine the fair value of the
liability associated with the put warrants. Fluctuations in the
market price of our common stock have an effect on the
liability. For example, if the price of our common stock was
$1.00 higher as of December 31, 2009, the put warrant
liability would increase by $976,000.
47
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The financial statements and supplementary data required by this
Item 8 are set forth at the pages indicated at
Item 15(a)(1).
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
We engaged J.H. Cohn, LLC our current accounting and audit firm,
in March 2009. There were no disagreements with accountants
during 2009.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and
procedures (as defined in Exchange Act
Rules 13a-15(e)).
Based on that evaluation, they have concluded that the
Companys disclosure controls and procedures as of the end
of the period covered by this report are effective in timely
providing them with material information relating to the Company
required to be disclosed in the reports the Company files or
submits under the Exchange Act.
There were no material changes in our internal control over
financial reporting during the quarter ended December 31,
2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
The report called for by Item 308(a) of
Regulation S-K
is included herein as Managements Report on Internal
Control Over Financial Reporting.
The attestation report called for by Item 308(b) of
Registration S-K is included herein as Report of
Independent Registered Public Accounting Firm on Internal
Control Over Financial Reporting.
Managements
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. With the
participation of the Chief Executive Officer and Chief Financial
Officer, our management conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework and criteria established in Internal
Control Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with policies or procedures may deteriorate.
The scope of managements assessment of the effectiveness
of internal control over financial reporting includes all of our
businesses except for Metalico Youngstown, Inc which was
acquired on December 8, 2010. Further discussion of this
acquisition can be found in Note 2 to our consolidated
financial statements. Based on this evaluation, our management
has concluded that our internal control over financial reporting
was effective as of December 31, 2009.
Our independent registered public accounting firm, J.H. Cohn
LLP, audited our internal control over financial reporting as of
December 31, 2009. J.H. Cohns report dated
March 16, 2010 expressed an unqualified opinion on our
internal control over financial reporting and is included in
this Item 9A.
48
Report of
Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting
To the Board of Directors and Stockholders
Metalico, Inc.
We have audited Metalico, Inc. and subsidiaries (the Company)
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
As described in the accompanying Managements Report on
Internal Control over Financial Reporting, management has
excluded Metalico Youngstown, Inc. from its assessment of
internal control over financial reporting as of
December 31, 2009, because it was acquired by the Company
in a purchase business combination in the fourth quarter of
2009. We have also excluded Metalico Youngstown, Inc. from our
audit of internal control over financial reporting.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of the Company as of
December 31, 2009, and the related consolidated statements
of operations, stockholders equity and cash flows of the
Company for the year then ended and our report dated
March 16, 2010 expressed an unqualified opinion.
J.H. Cohn LLP
Roseland, New Jersey
March 16, 2010
49
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Item 9B.
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Other
Information
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None.
PART III
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Item 10.
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Directors,
Executive Officers, and Corporate Governance
|
The directors and executive officers, their ages, positions held
and duration as director as of March 10, 2010, are as
follows:
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Director
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Name
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Age
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Position and Offices
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Since
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Carlos E. Agüero
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57
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Chairman, President, Chief Executive Officer and Director
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1997
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Michael J. Drury
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53
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Executive Vice President and Director
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1997
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Bret R. Maxwell (1,2,3)
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51
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Director
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1997
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Walter H. Barandiaran (1,2,3)
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57
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Director
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2001
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Paul A. Garrett (2,3)
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63
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Director
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2005
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Sean P. Duffy(1)
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50
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Director
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2010
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Arnold S. Graber
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56
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Executive Vice President, General Counsel and Secretary
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Eric W. Finlayson
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51
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Senior Vice President and Chief Financial Officer
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(1) |
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Member of Compensation Committee. |
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(2) |
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Member of Audit Committee. |
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(3) |
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Member of Nominating Committee. |
The terms of all directors will expire at the next annual
meeting of stockholders, or when their successors are elected
and qualified. Directors are elected each year, and all
directors serve one-year terms. Officers serve at the pleasure
of the Board of Directors. There are no arrangements or
understandings at this time between us and any other person
pursuant to which he or she was or is to be selected as a
director, executive officer or nominee. We have, however,
entered into employment agreements with our named executive
officers described in Part III, Item 11 below under
the subheading Employment Agreements.
Mr. Agüero serves as both principal executive officer
and chairman at the pleasure of the Board. The directors have
determined that Mr. Agüeros experience in our
industry and in corporate transactions, and his personal
commitment to the Company as a founder, investor, and employee,
make him uniquely qualified to supervise our operations and to
execute our business strategies. The Board is also cognizant of
the Companys relatively small size compared to its
publicly traded competitors and its relative youth as a
corporate organization. Managements activities are
monitored by standing committees of the Board, principally the
Audit Committee and the Compensation Committee. Both of these
committees are comprised solely of independent directors. For
these reasons, the directors deem this leadership structure
appropriate for us. We have not designated a lead director.
Although our full Board of Directors is ultimately responsible
for the oversight of our risk management processes, the Board is
assisted in this task by a number of its committees. These
committees are primarily responsible for considering and
overseeing the risks within their particular areas of concern.
For example, the Audit Committee focuses on financial reporting
and operational risk. As provided in its charter, the Audit
Committee meets regularly with management and our independent
registered public accountants to discuss the integrity of our
financial reporting processes and internal controls as well as
the steps that have been take to monitor and control risks
related to such matters. Our Compensation Committee, whose
duties are described in more detail below, evaluates the risks
that our executive compensation programs may generate.
50
Day-to-day
risk management responsibilities are assigned to our President
and Executive Vice President, who sit on and report to the
Board, and our Senior Vice President and Chief Financial Officer.
Neither the Board nor the Nominating Committee has adopted a
formal policy with regard to the consideration of diversity when
evaluating candidates for election to the Board. However, the
Nominating Committee believes that Board membership should
reflect diversity in its broadest sense, and so it does consider
a candidates experience, education, geographic location
and difference of viewpoint when evaluating his or her
qualifications for election to the Board. Whenever the
Nominating Committee evaluates a potential candidate, the
Committee considers that individual in the context of the
composition of the Board as a whole.
Biographical
Information
The following information sets forth the names of, and certain
information with respect to, each of our directors and executive
officers.
Carlos E. Agüero, age 57, founded Metalico in
August 1997 and has served as its Chairman of the Board,
President and Chief Executive Officer since that time. From 1990
to 1996, he held the positions of President, Chief Executive
Officer and a director of Continental Waste Industries, which he
founded in 1990 and helped guide through more than thirty
acquisitions and mergers. Continental commenced trading on the
NASDAQ National Market in 1993 and was acquired by Republic
Industries in 1996. Mr. Agüero is also the chairman
and a director of Beacon Energy Holdings Corp.
(Beacon), a corporation organized to produce and
market biodiesel within the larger biofuels sector and to invest
in other biodiesel producers. We currently own 33.1% of the
outstanding common stock of Beacon Energy Holdings, which trades
on the OTC Bulletin Board.
Michael J. Drury, age 53, has been an Executive Vice
President since our founding in August 1997 and a Director since
September 1997. He served as our Secretary from March 2000 to
July 2004. From 1990 to 1997, Mr. Drury was Senior Vice
President, Chief Financial Officer and a director of Continental
Waste Industries. He has a degree in accounting and is
experienced in acquisition development, investor relations,
operations and debt management. He has broad knowledge of debt
financing and industrial operations.
Bret R. Maxwell, age 51, has been a Director since
September 1997. He has been the managing general partner of MK
Capital LP, a venture capital firm specializing in investments
in technology and outsourcing companies, since its formation in
2002. Beginning in 1982, Mr. Maxwell was employed by First
Analysis Corporation, where he founded the venture capital
practice in 1985 and was later co-chief executive officer.
Mr. Maxwell was initially designated a Director by,
collectively, five investment funds managed by Mr. Maxwell,
First Analysis Corporation, and others that held a portion of
the Companys former preferred stock (since converted to
common) pursuant to our Third Amended and Restated Certificate
of Incorporation. He is the managing general partner of three of
the funds and a general partner of the other two. Since 1985 he
has personally led more than forty investments in industries
including telecommunication products and services, environmental
services, information security and business services and brings
an investors perspective to the Board. Mr. Maxwell
chairs the Boards Compensation Committee and also serves
on the Audit and Nominating Committees.
Walter H. Barandiaran, age 57, has been a Director
since June 2001. He is a founder and a managing partner of The
Argentum Group, a New York-based private equity firm founded in
1987 that serves as a general partner of several investment
funds focusing in the healthcare services, information
technology, industrial sector, and outsource businesses.
Mr. Barandiaran also serves as the chairman of AFS
Technologies, Inc., a provider of ERP software to the food
industry, since 2003 and Environmental Quality Management, Inc.,
a provider of engineering, consulting and remediation services,
since 2007. Mr. Barandiaran was also the chief executive
officer of HorizonLive, Inc., now known as Wimba, Inc. from 2002
until 2004. He additionally serves on the boards of directors of
several privately held corporations in which The Argentum Group
or its affiliates have invested. Mr. Barandiaran was
initially designated as a Director by, collectively, two
investment funds (Argentum Capital Partners, L.P., and Argentum
Capital Partners II, L.P.) that held a portion of the
Companys former preferred stock (since converted to
common) pursuant to our Third Amended and Restated Certificate
of Incorporation. He has more than fifteen years of private
equity investment experience, during which time he has led more
than thirty investments for Argentums funds. His areas of
investment expertise include outsourced business services,
51
technology-enabled services, and clean (environmental)
technologies and services. Mr. Barandiaran is a member of
the Boards Audit and Compensation Committees and chairs
the Nominating Committee.
Paul A. Garrett, age 63, has been a Director since
March 2005. From 1991 to 1998 he was the chief executive officer
of FCR, Inc., an environmental services company involved in the
recycling of paper, plastic, aluminum, glass and metals. Upon
FCRs merger in 1998 into KTI, Inc., a solid waste disposal
and recycling concern that operated
waste-to-energy
facilities and manufacturing facilities utilizing recycled
materials, he was appointed vice chairman and a member of
KTIs Executive Committee. He held those positions until
KTI was acquired by Casella Waste Systems, Inc., in 1999. For a
period of ten years before his entry into the recycling industry
Mr. Garrett was an audit partner with the former Arthur
Andersen & Co. The Board recognized this experience in
recommending his election and his appointment to our Audit
Committee. He also serves as a director of Environmental Quality
Management, Inc., an environmental remediation concern. He
chairs the Boards Audit Committee and serves on the
Nominating Committee.
Sean P. Duffy, age 50, is the President of FCR
Recycling based in Charlotte, North Carolina and a Regional Vice
President of its parent, Casella Waste Systems, Inc. FCR
processes and resells recyclable materials originating from the
municipal solid waste stream, including newsprint, cardboard,
office paper, containers and bottles. Mr. Duffy joined FCR
at its founding in 1983 and served that company in various
capacities, including President, until it was acquired by
Casella in 1999. He is an experienced executive with background
and perspective in segments of the recycling industry in which
the Company has had little or no prior activity. He was elected
a director of the Company January 1, 2010 following the
retirement of Earl B. Cornette from the Companys Board. He
is a member of the Compensation Committee.
Arnold S. Graber, age 56, has been Executive Vice
President and General Counsel of the Company since May 3,
2004 and our Secretary since July 1, 2004. From 2002 until
April 2004 he practiced law with the firm of Otterbourg,
Steindler, Houston & Rosen, P.C. in New York, New
York, where he focused on transactional matters and corporate
finance. From 1998 to 2001 he served as general counsel of a
privately held paging carrier and telecommunications retailer.
He is a member of the bars of the States of Illinois, New
Jersey, and New York.
Eric W. Finlayson, age 51, has been our Senior Vice
President and Chief Financial Officer since the Companys
founding in August 1997. Mr. Finlayson is a Certified
Public Accountant with more than twenty-five years of experience
in accounting. He has extensive background in SEC reporting and
compliance. From 1993 through 1997, Mr. Finlayson was
Corporate Controller of Continental Waste Industries.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires that
the Companys directors, executive officers, and 10%
stockholders file reports of ownership and changes in ownership
with the SEC and NYSE Amex. Directors, officers, and 10%
stockholders are required by the Securities and Exchange
Commission to furnish the Company with copies of the reports
they file.
Based solely on its review of the copies of such reports and
written representations from certain reporting persons, we
believe that all of our directors, officers, and 10%
stockholders complied with all filing requirements applicable to
them during the 2009 fiscal year.
Code of
Ethics
The Company has adopted a code of business conduct and ethics
applicable to its directors, officers (including its principal
executive officer, principal financial officer, principal
accounting officer, and controller) and employees, known as the
Code of Business Conduct and Ethics. The Code is available on
the Companys website at www.metalico.com. In the
event that the Company amends or waives any of the provisions of
the Code applicable to its principal executive officer,
principal financial officer, principal accounting officer, or
controller, the Company intends to disclose the same on its
website.
52
Audit
Committee
The Board of Directors has established a standing Audit
Committee and pursuant to a written charter approved by the
Board. The members of the Audit Committee through 2009 and as of
March 10, 2010 were Messrs. Garrett (Committee Chair),
Maxwell, and Barandiaran. Each member of the Audit Committee is
independent as defined in the listing standards of
the NYSE Amex and under the SECs
Rule 10A-3.
The Board has determined that Mr. Garrett satisfies the
requirements for an audit committee financial expert
under the rules and regulations of the SEC, based on
Mr. Garretts experience as set forth in his
biographical information above.
Functions:
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Selects the Companys independent auditor.
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Reviews the independence of the Companys independent
auditor.
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Approves the nature and scope of services provided by our
independent auditor.
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Reviews the range of fees and approves the audit fee payable to
our independent auditor.
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Confers with our independent auditor and reviews annual audit
results and annual and quarterly financial statements with the
independent auditor and the Companys management.
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Oversees the Companys evaluation of the effectiveness of
internal controls over our financial reporting.
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Oversees our internal audit function.
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|
Meets with the independent auditor without Company management
present; reviews with the independent auditor any audit
questions, problems or difficulties and managements
responses to these issues.
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|
Meets with the Companys management to review any matters
the Audit Committee believes should be discussed.
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|
Reviews with the Companys legal counsel any legal matters
that could have a significant impact on the Companys
financial statements.
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|
Oversees procedures for and receipt, retention, and treatment of
complaints on accounting, internal accounting controls, or
auditing matters.
|
|
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|
Advises and provides assistance to the Board of Directors with
respect to corporate disclosure and reporting practices.
|
A copy of the Companys Audit Committee Charter is
available on the Companys website, www.metalico.com.
Compensation
Committee
The Board of Directors has established a standing Compensation
Committee and pursuant to a written charter approved by the
Board. The members of the Compensation Committee through 2009
were Messrs. Maxwell (Committee Chair), Barandiaran, and
Earl B. Cornette, who retired from the Board as of
December 31, 2009. Mr. Duffy was appointed to the
Committee on March 9, 2010. Each member of the Compensation
Committee is independent as defined in the listing
standards of the NYSE Amex and under the SECs
Rule 10A-3.
Functions:
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Conducts a general review of the Companys compensation and
benefit plans to ensure that they meet corporate objectives.
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Determines the Companys chief executive officers
compensation, subject to the approval of the full Board.
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Reviews the Companys chief executive officers
recommendations on compensating the Companys officers and
adopting and changing major compensation policies and practices
and determines levels of compensation.
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|
Administers the Companys employee benefit plans.
|
53
|
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Reviews the nature and amount of Director compensation.
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|
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|
Administers the Companys long-term compensation plan and
executive bonus plan.
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Reports its recommendations to the Companys Board for
approval and authorization.
|
A copy of the Companys Compensation Committee Charter is
available on our website, www.metalico.com.
Nominating
Committee
The Board of Directors has established a standing Nominating
Committee and pursuant to a written charter approved by the
Board. The members of the Nominating Committee through 2009 and
as of March 10, 2010 were Messrs. Barandiaran
(Committee Chair), Maxwell, and Garrett. Each member of the
Nominating Committee is independent as defined in
the listing standards of the NYSE Amex and under the SECs
Rule 10A-3.
Functions:
|
|
|
|
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Identifies and evaluates qualified Director candidates.
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Recommends appropriate candidates for election to the Board.
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Monitors Director compensation.
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Periodically reviews Director orientation and education and the
structure and composition of the Boards committees.
|
A copy of the Companys Nominating Committee Charter is
available on the Companys website, www.metalico.com.
|
|
Item 11.
|
Executive
Compensation
|
Compensation
Discussion and Analysis
The Companys primary philosophy for compensation is to
offer a program that rewards each of the members of senior
management commensurately with the Companys overall growth
and performance, including each persons individual
performance during the previous fiscal year. The Companys
compensation program for senior management is designed to
attract and retain individuals who are capable of leading the
Company in achieving its business objectives in an industry
characterized by competitiveness, growth and change. We consider
the impact of our executive compensation program, and the
incentives created by the compensation awards, on our risk
profile. In addition, we review all of our compensation policies
and procedures, including the incentives that they create and
factors that may reduce the likelihood of excessive risk taking,
to determine whether they present a significant risk to us.
Based on this review, we have concluded that our compensation
policies and procedures are not reasonably likely to have a
material adverse effect on us.
The Company believes a substantial portion of the annual
compensation of each member of senior management should relate
to, and should be contingent upon, the success of the Company,
as well as the individual contribution of each particular person
to that success. As a result, a significant portion of the total
compensation package consists of variable, performance-based
components, such as bonuses and stock awards, which can increase
or decrease to reflect changes in corporate and individual
performance.
Overview
of Cash and Equity Compensation
We compensate our executive officers in these different ways in
order to achieve different goals. Cash compensation, for
example, provides our executive officers a minimum base salary.
Incentive bonus compensation is generally linked to the
achievement of short-term financial and business goals, and is
intended to reward our executive officers for our overall
performance, as well as their individual performance in reaching
annual goals that are agreed to in advance by management and the
Compensation Committee. Stock options and grants of restricted
stock are intended to link our executive officers
longer-term compensation with the performance of our stock and
to build executive ownership positions in the Companys
stock. This encourages our executive officers to remain
54
with us, to act in ways intended to maximize stockholder value,
and to penalize them if we
and/or our
stock fails to perform to expectations.
We view the three components of our executive officer
compensation as related but distinct. Although our Compensation
Committee does review total compensation, we do not believe that
compensation derived from one component of compensation
necessarily should negate or reduce compensation from other
components. We determine the appropriate level for each
compensation component based in part, but not exclusively, on
our historical practices with the individual and our view of
individual performance and other information we deem relevant.
Our Compensation Committee has not adopted any formal or
informal policies or guidelines for allocating compensation
between long-term and currently paid out compensation, between
cash and non-cash compensation, or among different forms of
compensation. During 2009, we did not review wealth and
retirement accumulation as a result of employment with us in
connection with the review of compensation packages.
We conduct an annual review of the aggregate level of our
executive compensation, as well as the mix of elements used to
compensate our executive officers. This review is based on
informal samplings of executive compensation paid by companies
similarly situated to ours. In addition, our Compensation
Committee has historically taken into account input from other
corporations in which its members hold positions or manage
investments, competitive market practices, and publicly
available data relating to the compensation practices and
policies of other companies within and outside our industry. Our
Compensation Committee realizes that benchmarking
our compensation against the compensation earned at comparable
companies may not always be appropriate, but believes that
engaging in a comparative analysis of our compensation practices
is useful. We have not retained a compensation consultant to
review our policies and procedures with respect to executive
compensation.
Elements
of Compensation
The principal elements of our compensation package are base
salary, annual cash incentive bonus, long-term incentive plan
awards, and perquisites and other compensation. We also provide
severance benefits under the terms of our employment agreements
with the named executive officers. The details of each of these
components are described below.
Base
Salary
Base salary is used to recognize the experience, skills,
knowledge and responsibilities required of all our employees,
including our named executive officers. Base salary is generally
fixed and does not vary based on our financial and other
performance. Base salaries for 2009 for each of our named
executive officers were set under the terms of their respective
three-year employment agreements approved by the Board of
Directors on March 20, 2007 and terminating
December 31, 2009. Base salaries for 2010 for each of our
named executive officers were set under the terms of their
respective three-year employment agreements approved by the
Board of Directors on December 21, 2009 and effective
January 1, 2010 through December 31, 2012. Annual
increases for the second and third years under both sets of
agreements are determined by reference to the Consumer Price
Index and fixed in October of the preceding year. However, each
of our named executive officers waived his respective right to a
contractual salary increase for 2009 and, effective
February 15, 2009, agreed to a temporary 10% salary
reduction for an indefinite period in recognition of the impact
of the global recession on the Companys performance and
resources. Those reductions were rescinded as of
September 1, 2009.
When establishing base salaries, the Compensation Committee and
management considered a number of factors, including the
seniority of the individual, the functional role of the
position, the level of the individuals responsibility, the
ability to replace the individual, the base salary of the
individual at his prior employment or in prior years with the
Company as appropriate, and the number and availability of well
qualified candidates to assume the individuals role. Base
salary ranges are reviewed and re-established by our
Compensation Committee no less often than upon the expiration of
each named executive officers employment agreement.
55
Annual
Cash Incentive Bonus
Annual cash incentive bonuses are intended to compensate for the
achievement of both our annual Company-wide goals and individual
annual performance objectives. All of our employees are eligible
for annual cash incentive bonuses. We provide this opportunity
to attract and retain an appropriate caliber of talent and to
motivate executives and other employees to achieve our business
goals.
The Compensation Committee oversees the administration of an
Executive Bonus Plan for the benefit of the named executive
officers. Under the terms of the Executive Bonus Plan, through
the course of each year the Compensation Committee considers and
identifies corporate and individual goals in consultation with
management. Named executive officers are allocated
responsibility for various goals, which may overlap among
executive officers. Individual objectives are necessarily tied
to the particular area of expertise or responsibility of the
employee and such employees performance in attaining those
objectives relative to external forces, internal resources
utilized and overall individual effort. At the end of each year
the Compensation Committee reviews the levels of achievement and
performance. The Compensation Committee approves the annual cash
incentive award for the Chief Executive Officer and each other
named executive officer. The Compensation Committees
determination, other than with respect to the Chief Executive
Officer, is generally based upon the Chief Executive
Officers recommendations. Exact amounts are confirmed in
the discretion of the Committee and recommended to the full
Board of Directors for ratification. Employee directors abstain
from the Boards deliberations and votes on their own
compensation.
We do not have a formal policy on the effect on bonuses of a
subsequent restatement or other adjustment to our financial
statements, other than the penalties provided by law.
Long-Term
Incentive Plan Awards
We have adopted our 1997 Long-Term Incentive Plan (the
1997 Plan) and 2006 Long-Term Incentive Plan (the
2006 Plan) for the purpose of providing additional
performance and retention incentives to executive officers and
other employees by facilitating their purchase of a proprietary
interest in our common stock. The two plans provide certain of
our employees, including our executive officers, with incentives
to help align those employees interests with the interests
of our stockholders and to give those employees a continuing
stake in the Companys long-term success. The Compensation
Committee also believes that the use of stock-based awards
offers the best approach to achieving our compensation goals.
The 1997 Plan has expired except insofar as it governs awards
already granted and still outstanding under it. Upon the
effectiveness of the 2006 Plan, our Board of Directors ceased
issuing awards under the 1997 Plan. Both plans provide for the
grant of incentive stock options, nonqualified stock options,
stock appreciation rights, restricted stock awards, deferred
stock awards and other equity-based rights. In most cases awards
under the plans have been in the form of stock options.
The Compensation Committee administers both plans and determines
the types and amounts of awards to be granted to eligible
employees. Grants to executive officers are based upon the
principles underlying our Executive Bonus Plan described above.
All grants are subject to the ratification of the Board of
Directors. Employee directors abstain from the Boards
deliberations and votes on their own compensation. The plans
permit awards to be made at any time in the Committees
discretion. Subject to anti-dilution adjustments for changes in
our common stock or corporate structure, a number of shares of
common stock equal to the number of options granted under the
1997 plan have been reserved for issuance under that Plan and
4,642,522 shares of common stock have been reserved for
issuance under the 2006 Plan. As of March 10, 2010 options
for 144,584 shares of our common stock were granted under
the 1997 Plan and remain outstanding (that is, unexercised). As
of March 10, 2010, options for 1,998,132 shares of our
common stock and 168,500 shares of restricted stock have
been granted under the 2006 Plan. Shares subject to awards which
expire or are cancelled or forfeited will again become available
for issuance under the 2006 Plan. The value of stock options is
dependent upon our future stock price.
Stock option grants may be made at the commencement of
employment for certain managerial-level employees. In accordance
with company policy they are generally made once a year
thereafter by the Compensation Committee as a component of bonus
compensation. Bonus stock options are granted based upon several
factors, including seniority, job duties and responsibilities,
job performance, and our overall performance. The Compensation
Committee considers the recommendations of the Chief Executive
Officer with respect to awards for
56
employees other than the Chief Executive Officer. Unless
otherwise determined by the Compensation Committee at the time
of grant, all outstanding awards under the 1997 Plan will become
fully vested upon a change in control. Our 2006 Long-Term
Incentive Plan provides that in the event of a change in
control, all unvested options immediately vest and remain
exercisable and vested for the balance of their stated term
without regard to any termination of employment or service other
than a termination for cause and any restriction or deferral on
an award immediately lapses. The Compensation Committee
determines the terms of all options. In general, stock options
vest in equal monthly installments over three years and may be
exercised for up to five years from the date of grant at an
exercise price equal to the fair market value of our common
stock on the date the grant is approved by our Board. The
Compensation Committee believes that the three-year vesting
schedule will provide ongoing incentives for executives and
other key employees to remain in our service. All outstanding
awards will become fully vested upon a change in control. Upon
termination of a participants service with the Company, he
or she may exercise his or her vested options for the period of
ninety days from the termination of employment, provided, that
if termination is due to death or disability, the option will
remain exercisable for twelve months after such termination.
However, an option may never be exercised later than the
expiration of its term.
Perquisites
and Other Compensation
Under the terms of their respective employment agreements, we
provide each named executive officer with a leased or owned car
or automotive allowance together with car insurance and life
insurance. We also provide general health and welfare benefits,
including medical and dental coverage. We offer participation in
our defined contribution 401(k) plan. At the beginning of 2009,
we contributed matching funds of up to 2% of eligible
compensation for every employee enrolled in the 401(k) plan,
including named executive officers. As of March 15, 2009,
we suspended the contribution. We furnish these benefits to
provide an additional incentive for our executives and to remain
competitive in the general marketplace for executive talent. For
additional information concerning Perquisites and Other
Compensation see Employment Agreements below.
Severance
Benefits
Our named executive officers and certain other executives with
employment agreements are covered by arrangements that specify
payments in the event the executives employment is
terminated. Under these employment agreements, in the event that
we terminate such executives employment without cause (as
defined in the applicable employment agreement), we will be
required to pay the executive an amount equal to his base salary
for twelve months as well as COBRA (health insurance premiums)
for the same period. Our primary reason for including severance
benefits in compensation packages is to attract and retain the
best possible executive talent. For a further description of
these severance benefits, see Employment Agreements
below.
Change in
Control Benefits
Our named executive officers are covered by arrangements which
specify that all otherwise unvested stock options fully vest
upon a change in control. Our primary reason for
including change in control benefits in compensation packages is
to attract and retain the best possible executive talent.
For additional information concerning benefits for named
executive officers upon a change in control, see
Employment Agreements below.
Compensation
Mix
The Compensation Committee determines the mix of compensation,
both between short and long-term compensation and cash and
non-cash compensation, to design compensation structures that we
believe are appropriate for each of our named executive
officers. We use short-term compensation (base salaries and
annual cash bonuses) and long-term compensation (option and
restricted stock awards) to encourage long-term growth in
stockholder value and to advance our additional objectives
discussed above. Although our Compensation Committee does review
total compensation, we do not believe that compensation derived
from one component of compensation necessarily should negate or
reduce compensation from other components. We determine the
appropriate level for each compensation component based in part,
but not exclusively, on our historical practices
57
with the individual and our view of individual performance and
other information we deem relevant. Our Compensation Committee
has not adopted any formal or informal policies or guidelines
for allocating compensation between long-term and currently paid
out compensation, between cash and non-cash compensation, or
among different forms of compensation. As the Companys
growth is recent, we have not reviewed wealth and retirement
accumulation as a result of employment with us, and we have only
focused on fair compensation for the year in question. The
summary compensation table below illustrates the long and
short-term and cash and non-cash components of compensation.
Tax
and Regulatory Considerations
We account for the equity compensation expense for our employees
under the rules of ASC Topic 718 which requires us to estimate
and record an expense for each award of equity compensation over
the service period of the award. Accounting rules also require
us to record cash compensation as an expense at the time the
obligation is accrued.
Under Section 162(m) of the Internal Revenue Code, a
publicly-held corporation may not deduct more than
$1 million in a taxable year for certain forms of
compensation made to the chief executive officer and other named
executive officers listed on the Summary Compensation Table.
None of our employees has received annual compensation of
$1,000,000 or more. While we believe that all compensation paid
to our executives in 2009 was deductible, it is possible that
some portion of compensation paid in future years will be
non-deductible.
Role
of Executive Officers in Executive Compensation
The Compensation Committee determines the compensation payable
to each of the named executive officers as well as the
compensation of the members of the Board of Directors. In each
case, the determination of the Compensation Committee is subject
to the ratification of the full Board. Employee directors
abstain from any deliberations or votes on their own
compensation. The Compensation Committee formulates its
recommendation for the compensation paid to each of our named
executive officers, other than with respect to compensation
payable to our Chief Executive Officer, based upon advice
received from our Chief Executive Officer.
58
COMPENSATION
COMMITTEE REPORT
Under the rules of the SEC, this Compensation Committee
Report is not deemed to be incorporated by reference by any
general statement incorporating this Annual Report by reference
into any filings with the SEC.
We, the Compensation Committee of the Board of Directors of
Metalico, Inc. (the Company), have reviewed and
discussed the Compensation Discussion and Analysis set forth
above with the management of the Company. Based on such review
and discussion, we have recommended to the Board of Directors
inclusion of the Compensation Discussion and Analysis in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009.
THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Bret R. Maxwell, Chairman
Walter H. Barandiaran
Sean P. Duffy
Summary
Compensation Table
The following Summary Compensation Table, which should be read
in conjunction with the explanations provided above, summarizes
compensation information for our named executive officers (our
chief executive officer, chief financial officer, and our other
two executive officers; we have only four executive officers)
for the fiscal year ended December 31, 2009:
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Stock
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All Other
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Salary
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Bonus(1)
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Awards
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Option
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)
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($)(2)
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Awards ($)(3)
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($)
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($)
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Carlos E. Agüero
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2009
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342,744
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85,000
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520,556
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22,430
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(4)
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970,730
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Chairman, President and Chief
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2008
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362,250
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150,000
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96,150
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338,926
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31,025
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(4)
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978,351
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Executive Officer
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2007
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350,000
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350,000
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107,004
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30,153
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(4)
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837,157
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Eric W. Finlayson
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2009
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156,683
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35,000
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101,033
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9,964
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(5)
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302,680
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Senior Vice President and
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2008
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165,600
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30,000
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17,628
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75,063
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19,696
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(5)
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307,987
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Chief Financial Officer
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2007
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160,000
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65,000
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44,665
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17,308
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(5)
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286,973
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Michael J. Drury
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2009
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235,025
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55,000
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255,799
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7,874
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(6)
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553,698
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Executive Vice President
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2008
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248,400
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75,000
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48,075
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178,460
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18,622
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(6)
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568,557
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2007
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240,000
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150,000
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78,256
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18,061
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(6)
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486,317
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Arnold S. Graber
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2009
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220,335
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40,000
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122,134
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14,276
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(7)
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396,745
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Executive Vice President,
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2008
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232,875
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40,000
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22,435
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82,103
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25,255
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(7)
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402,668
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General Counsel and Secretary
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2007
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225,000
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100,000
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52,391
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22,189
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(7)
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399,580
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(1) |
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Cash bonuses are included in compensation for the year for which
they were earned, even if actually paid or awarded in the
subsequent year. |
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(2) |
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Amount reflects the expense recognized for financial reporting
purposes in accordance with ASC Topic 718 of restricted stock as
of the date of grant. |
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(3) |
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Amount reflects the annual amortized expense, calculated in
accordance with ASC Topic 718. See Note 15 of Notes
to Financial Statements Stock-Based Compensation
Plans. |
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(4) |
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Includes matching contribution payments made to our 401(k) Plan
(2% of eligible compensation from January 1, 2009 to
March 15, 2009 and 4% of eligible compensation for each of
the other listed years) for the benefit of Mr. Agüero
of $4,338, $16,581 and $15,695 and the dollar value of term life
insurance premiums paid for the benefit of Mr. Agüero
of $1,836, $1,836 and $1,563 for the years ending
December 31, 2009, 2008 and 2007 respectively. Also
includes car insurance premiums for additional vehicles of
$7,000, $3,352 and $3,639 for the years ending December 31,
2009, 2008 and 2007, respectively. |
59
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(5) |
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Includes matching contribution payments made to our 401(k) Plan
(2% of eligible compensation from January 1, 2009 to
March 15, 2009 and 4% of eligible compensation for each of
the other listed years) for the benefit of Mr. Finlayson of
$1,211, $9,224 and $6,889 and the dollar value of term life
insurance premiums paid for the benefit of Mr. Finlayson of
$725, $725 and $672 for the years ending December 31, 2009,
2008 and 2007, respectively. |
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(6) |
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Includes matching contribution payments made to our 401(k) Plan
(2% of eligible compensation from January 1, 2009 to
March 15, 2009 and 4% of eligible compensation for each of
the other listed years) for the benefit of Mr. Drury of
$2,417, $10,359 and $10,013 and the dollar value of term life
insurance premiums paid for the benefit of Mr. Drury of
$1,451, $1,451 and $1,236 for the years ending December 31,
2009, 2008 and 2007, respectively. |
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(7) |
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Includes matching contribution payments made to our 401(k) Plan
(2% of eligible compensation from January 1, 2009 to
March 15, 2009 and 4% of eligible compensation for each of
the other listed years) for the benefit of Mr. Graber of
$1,660, $13,440 and $10,440 and the dollar value of term life
insurance premiums paid for the benefit of Mr. Graber of
$1,124, $1,124 and $1,058 for the years ending December 31,
2009, 2008 and 2007, respectively. |
Grants of
Plan-Based Awards
During 2009, we granted stock options to our named executive
officers pursuant to our 2006 Long-Term Incentive Plan. All of
the awarded stock options had an initial vest of one-twelfth of
the grant on the date occurring three months after the date of
grant, thereafter vest in equal monthly installments until the
third anniversary of the date of grant, and may be exercised for
up to five years from the date of grant. Information with
respect to each of these awards, including estimates regarding
future payouts during the relevant performance period under each
of these awards on a grant by grant basis, is set forth in the
table below:
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Option Awards:
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Grant
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Number of
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Exercise or
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Date Fair
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Stock Awards:
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Securities
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Base Price
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Value of
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Number of Shares of
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Underlying
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of Option
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Option
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Grant
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Stocks or Units
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Options
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Awards
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Awards(1)
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Name
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Date
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(#)
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(#)
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($/Sh)
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($)
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Carlos E. Agüero, CEO
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August 18, 2009
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50,000
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$
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3.88
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$
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128,000
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Eric W. Finlayson, CFO
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August 18, 2009
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25,000
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$
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3.88
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$
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64,000
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Michael J. Drury
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August 18, 2009
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40,000
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$
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3.88
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$
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102,400
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Arnold S. Graber
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August 18, 2009
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35,000
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$
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3.88
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$
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89,600
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(1) |
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Amount for option awards reflects the total fair value of stock
options in 2009, calculated in accordance with ASC Topic 718.
See Note 15 of Notes to Financial Statements
Stock-Based Compensation Plans. |
Narrative
Disclosure of Summary Compensation and Grants of Plan-Based
Awards
Executive
Bonus Plan
Our Board of Directors has approved the Executive Bonus Plan as
an incentive compensation plan for our executive officers to be
administered by the Boards Compensation Committee. Each
year, the Compensation Committee considers and identifies a
series of corporate and individual goals. Each executive officer
is allocated a measure of responsibility for particular goals,
which may overlap with assigned goals for other officers. In the
past, goals have included such corporate objectives as expanding
market share, improving Company efficiencies, and satisfactory
execution and supervision of staffing initiatives. Individual
incentive awards are based on progress in achieving allocated
goals and discretionary evaluations of the eligible employees.
Awards included a cash payment under the Bonus Plan and a grant
of options to purchase our common stock under the Long-Term
Incentive Plans described below.
60
1997
Long-Term Incentive Plan
We adopted the 1997 Long-Term Incentive Plan (the 1997
Plan) for the purpose of providing additional performance
and retention incentives to officers and employees by
facilitating their purchase of a proprietary interest in our
common stock. Subject to anti-dilution adjustments for changes
in our common stock or corporate structure, the 1997 Plan
allowed for a number of shares of our common stock equal to the
greater of 525,000 or 10% of the total number of shares of our
common stock outstanding to be issued pursuant to awards under
the 1997 Plan. The 1997 Plan has expired except insofar as it
governs awards already granted and still outstanding under it.
Upon the effectiveness of the 2006 Plan (described below), our
Board of Directors ceased issuing awards under the 1997 Plan.
The 1997 Plan provided for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights,
restricted stock awards, deferred stock awards and other
equity-based rights to our officers, consultants and employees
as determined by the 1997 Plan administrator from time to time
in its discretion. The 1997 Plan is currently administered by
the Compensation Committee of our Board of Directors.
Stock options were granted based upon several factors, including
seniority, job duties and responsibilities, job performance, and
our overall performance. Stock options were typically granted
with an exercise price equal to the fair market value of a share
of our common stock on the date of grant, and vested at such
times as determined by the Compensation Committee in its
discretion. In general, stock options vest in equal monthly
installments over three years and may be exercised for up to
five years from the date of grant. Unless otherwise determined
by the Compensation Committee at the time of grant, all
outstanding awards under the 1997 Plan will become fully vested
upon a change in control.
We receive no monetary consideration for the granting of stock
options pursuant to the 1997 Plan. However, we receive the cash
exercise price for each option exercised. The exercise of
options and payment for the shares received would contribute to
our equity.
As of March 10, 2009, a total of approximately
144,584 shares of our common stock have either been issued
under the 1997 Plan or are subject to outstanding awards (that
is, unexercised options) under the 1997 Plan. No other types of
award were issued under the 1997 Plan.
2006
Long-Term Incentive Plan
Our 2006 Long-Term Incentive Plan (the 2006 Plan)
became effective May 23, 2006 upon approval by our
stockholders at our 2006 annual meeting. The purpose of the 2006
Plan is to provide additional performance and retention
incentives to officers and employees by facilitating their
purchase of a proprietary interest in our common stock. Subject
to anti-dilution adjustments for changes in our common stock or
corporate structure, currently 4,642,522 shares of common
stock have been reserved for issuance under the 2006 Plan, which
plan enables us to issue awards in the aggregate of up to 10% of
our outstanding common stock. As of March 10, 2009, options
for 1,998,132 shares of our common stock have been granted
and 1,826,867 are outstanding under the 2006 Plan and
168,500 shares of restricted stock have been granted and
152,065 shares are outstanding under the 2006 Plan.
The 2006 Plan provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights,
restricted stock awards, deferred stock awards and other
equity-based rights. Awards under the 2006 Plan may be granted
to our officers, directors, consultants and employees as
determined by the 2006 Plan administrator from time to time in
its discretion. The 2006 Plan is currently administered by the
Compensation Committee of our Board of Directors.
Stock options are granted based upon several factors, including
seniority, job duties and responsibilities, job performance, and
our overall performance. Stock options are typically granted
with an exercise price equal to the fair market value of a share
of our common stock on the date of grant, and become vested at
such times as determined by the Compensation Committee in its
discretion. In general, stock options vest in equal monthly
installments over three years and may be exercised for up to
five years from the date of grant. Unless otherwise determined
by the Compensation Committee at the time of grant, all
outstanding awards under the 2006 Plan will become fully vested
upon a change in control.
61
We receive no monetary consideration for the granting of stock
options pursuant to the 2006 Plan. However, we receive the cash
exercise price for each option exercised. The exercise of
options and payment for the shares received would contribute to
our equity.
401(k)
Plan
We maintain a defined contribution employee retirement plan, or
401(k) plan, for our employees. Our executive officers are also
eligible to participate in the 401(k) plan on the same basis as
our other employees. The 401(k) plan is intended to qualify as a
tax-qualified plan under Section 401(k) of the Internal
Revenue Code. The plan provides that each participant may
contribute a percentage of his or her pre-tax compensation up to
the statutory limit, which was $16,500 for calendar year 2009
and is again $16,500 for calendar year 2010. Participants who
are age 50 or older can also make
catch-up
contributions, which for calendar years 2009 and 2010 could be
up to an additional $5,000 per year above the statutory limit.
Under the 401(k) plan, each participant is fully vested in his
or her deferred salary contributions when contributed.
Participant contributions are held and invested by the
plans trustee. The plan also permits us to make
discretionary contributions and matching contributions, subject
to established limits and a vesting schedule. In 2009, we
matched 100% of participant contributions up to the first 2% of
eligible compensation until March 15, 2009, as of which
date we suspended our employer match.
Outstanding
Equity Awards at Fiscal Year End
The following table summarizes equity awards granted to our
named executive officers that were outstanding at the end of
fiscal 2009.
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Option Awards
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Stock Awards(1)
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Market
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Value of
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Number of
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Number of
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Number of
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Shares or
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Securities
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Securities
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Shares or
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Units of
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underlying
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underlying
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Units of
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Stock That
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unexercised
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unexercised
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Option
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Option
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Stock
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Have Not
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options
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options
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Exercise
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Expiration
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That Have
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Vested
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Name
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Exercisable
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Unexercisable
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Price
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Date
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Not Vested (#)
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($)(2)
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Carlos E. Agüero, CEO
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10,000
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$
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49,200
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5,556
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44,444
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|
$
|
3.88
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|
8/18/2015
|
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|
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87,500
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|
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87,500
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|
|
$
|
14.02
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|
|
7/9/13
|
|
|
|
|
|
|
|
|
|
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|
80,556
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|
|
|
19,444
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|
|
$
|
7.74
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|
|
|
7/27/12
|
|
|
|
|
|
|
|
|
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|
|
23,333
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|
|
|
|
|
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$
|
3.03
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|
|
|
12/31/10
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|
|
|
|
|
|
|
|
|
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54,000
|
|
|
|
|
|
|
$
|
4.90
|
|
|
|
12/31/09
|
|
|
|
|
|
|
|
|
|
Eric W. Finlayson, CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,833
|
|
|
$
|
9,018
|
|
|
|
|
2,778
|
|
|
|
22,222
|
|
|
$
|
3.88
|
|
|
|
8/18/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
$
|
14.02
|
|
|
|
7/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
14,500
|
|
|
|
3,500
|
|
|
$
|
7.74
|
|
|
|
7/27/12
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
5.50
|
|
|
|
7/17/11
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
3.03
|
|
|
|
12/31/10
|
|
|
|
|
|
|
|
|
|
|
|
|
26,000
|
|
|
|
|
|
|
$
|
4.90
|
|
|
|
12/31/09
|
|
|
|
|
|
|
|
|
|
Michael J. Drury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
$
|
24,600
|
|
|
|
|
4,444
|
|
|
|
35,556
|
|
|
$
|
3.88
|
|
|
|
8/18/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
40,000
|
|
|
$
|
14.02
|
|
|
|
7/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
40,278
|
|
|
|
9,722
|
|
|
$
|
7.74
|
|
|
|
7/27/12
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
$
|
5.50
|
|
|
|
7/17/11
|
|
|
|
|
|
|
|
|
|
|
|
|
16,667
|
|
|
|
|
|
|
$
|
3.03
|
|
|
|
12/31/10
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
$
|
4.90
|
|
|
|
12/31/09
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Shares or
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Units of
|
|
|
underlying
|
|
underlying
|
|
|
|
|
|
Units of
|
|
Stock That
|
|
|
unexercised
|
|
unexercised
|
|
Option
|
|
Option
|
|
Stock
|
|
Have Not
|
|
|
options
|
|
options
|
|
Exercise
|
|
Expiration
|
|
That Have
|
|
Vested
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Not Vested (#)
|
|
($)(2)
|
|
Arnold S. Graber
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333
|
|
|
$
|
11,478
|
|
|
|
|
3,889
|
|
|
|
31,111
|
|
|
$
|
3.88
|
|
|
|
8/18/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
$
|
14.02
|
|
|
|
7/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
20,139
|
|
|
|
4,861
|
|
|
$
|
7.74
|
|
|
|
7/27/12
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
$
|
5.50
|
|
|
|
7/17/11
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
3.03
|
|
|
|
12/31/10
|
|
|
|
|
|
|
|
|
|
|
|
|
28,000
|
|
|
|
|
|
|
$
|
4.90
|
|
|
|
12/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All grants of stock vest in equal quarterly installments over
three years on the last day of each March, June, September and
December with final vesting to occur December 31, 2010. |
|
(2) |
|
Value based on the number of unvested shares as of
December 31, 2009 at a per share market price of $4.92. |
Option
Exercises and Stock Vested
The following table shows aggregate exercises of stock options
and vests of restricted stock by our named executive officers
during the year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
|
|
Acquired
|
|
|
|
Acquired
|
|
|
|
|
on
|
|
Value
|
|
on
|
|
Value
|
|
|
Exercise
|
|
Realized(1)
|
|
Vesting
|
|
Realized(2)
|
Name
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
|
Carlos E. Agüero, CEO
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
$
|
38,625
|
|
Eric W. Finlayson, CFO
|
|
|
|
|
|
|
|
|
|
|
1,834
|
|
|
$
|
7,081
|
|
Michael J. Drury
|
|
|
90,000
|
|
|
|
225,900
|
|
|
|
5,000
|
|
|
$
|
19,313
|
|
Arnold S. Graber
|
|
|
|
|
|
|
|
|
|
|
2,334
|
|
|
$
|
9,013
|
|
|
|
|
(1) |
|
Value based on the aggregate difference between the closing
market price on the date of exercise and the exercise price. |
|
(2) |
|
Value based on the dollar amount realized upon each quarterly
vesting date by multiplying the number of shares of stock vested
by the market value of the shares on the vesting date. |
Pension
Benefits
Our named executive officers did not participate in, or
otherwise receive any benefits under, any pension or retirement
plan sponsored by us during the year ended December 31,
2009, other than our 401(k) Plan.
Nonqualified
Deferred Compensation
Our named executive officers did not earn any nonqualified
compensation benefits from us during the year ended
December 31, 2009.
Employment
Agreements
We have employment agreements with each of our named executive
officers. Each agreement has a three-year term.
The current agreements with Messrs. Agüero, Drury,
Graber and Finlayson expire December 31, 2012. The
agreements provide for minimum annual compensation and
eligibility to receive annual performance bonuses in a
63
combination of cash payments and option grants. Salaries are
specified for the first year of the employment term and
thereafter increase each year by a percentage equal to the
increase in the Consumer Price Index over the previous year,
provided that such increases cannot be greater than 7% or less
than 3.5%.
The actual amount of the annual bonus is determined based upon
the named executives performance, our performance and
certain performance targets recommended by the Competition
Committee under our Executive Bonus Plan and Long-Term Incentive
Plans and approved by our Board of Directors. Under their
respective agreements we also provide each of
Messrs. Agüero and Drury with a $500,000 life
insurance policy and each of Messrs. Graber and Finlayson
with a $300,000 life insurance policy. Each named executive
officer is also furnished with the use of a car.
If the executives employment is terminated on account of
death or disability, he is entitled to no further compensation
or benefits other than those earned through the month in which
such termination occurs. If the executives employment is
terminated by us for cause (as defined in the next
paragraph) or if the executive terminates his own employment for
any reason other than for good reason (as defined in
the next paragraph), the executive is entitled to no further
compensation or benefits other than those earned through the
date of termination. If the executives employment is
terminated by us for any reason other than for cause, death or
disability, or if the executive terminates his own employment
for good reason, we will provide, as severance benefits, payment
of 100% of the executives base salary at the rate in
effect on the date of termination, continuation of health and
medical benefits for the twelve-month period following such
termination, and immediate vesting of any unvested options.
Payment of the amount of the executives base salary is to
be made in a lump sum immediately subsequent to the date of
termination in the event of a termination in connection with,
upon, or within one year after a change in control
(as defined in the next paragraph) or a termination by the
executive for good reason in connection with, upon, or within
one year after a change in control, and in installments in
accordance with our payroll policy in effect at the time payment
is to be made in the event of any other termination entitling
the executive to severance. All unvested options vest upon a
change in control regardless of whether a termination occurs.
An executive may be terminated for cause if he
(a) neglects his duties and such neglect is not
discontinued promptly after written notice, (b) is
convicted of any felony, (c) fails or refuses to comply
with the reasonable written policies of the Company or
directives of executive officers that are not inconsistent with
his position and such failure is not discontinued promptly after
written notice, or (d) materially breaches covenants or
undertakings under his employment agreement and such breach is
not remedied promptly. Good reason under the
employment agreements means the occurrence, without the
executives prior written consent, of any of the following
events: (i) a substantial reduction of the executives
duties, responsibilities, or status as an officer (except
temporarily during any period of disability), or the executive
being required to report to any person other than the executive
to whom he currently reports; (ii) a change in the office
or location where the executive is based on the date of his
employment agreement of more than thirty (30) miles, which
new location is more than sixty (60) miles from the
executives primary residence; or (iii) a breach by
the Company of any material term of the employment agreement.
Change in control under the employment agreements
means the occurrence of: (i) the acquisition at any time by
a person or group (as those terms are
used in Sections 13(d)(2) of the Securities Exchange Act of
1934, as amended (the Exchange Act) (excluding, for
this purpose, the Company or any subsidiary or any benefit plan
of the Company or any subsidiary) of beneficial ownership (as
defined in
Rule 13d-3
under the Exchange Act) directly or indirectly, of securities
representing 50% or more of the combined voting power in the
election of directors of the then-outstanding securities of the
Company or any successor of the Company; (ii) the
termination of service as directors, for any reason other than
death or disability, from the Board, during any period of two
(2) consecutive years or less, of individuals who at the
beginning of such period constituted a majority of the Board,
unless the election of or nomination for election of each new
director during such period was approved by a vote of at least
two-thirds of the directors still in office who were directors
at the beginning of the period; (iii) approval by the
stockholders of the Company of any merger or consolidation or
statutory share exchange as a result of which the common stock
of the Company is changed, converted or exchanged (other than a
merger or share exchange with a wholly-owned subsidiary of the
Company) or liquidation of the Company or any sale or
disposition of 50% or more of the assets or earning power of the
Company except for a tax free distribution of any portion of the
Company to its stockholders; or (iv) approval by the
stockholders of the Company of any merger or consolidation or
statutory share exchange to which the Company is a party as a
result of which the persons who were stockholders of the Company
immediately
64
prior to the effective date of the merger or consolidation or
statutory share exchange shall have beneficial ownership of less
than 50% of the combined voting power in the election of
directors of the surviving corporation following the effective
date of such merger or consolidation or statutory share
exchange. Change in control does not include any
reduction in ownership by the Company of a subsidiary of the
Company or any other entity designated by the Board in which the
Company owns at least a 50% interest (including, but not limited
to, partnerships and joint ventures.)
Each agreement contains confidentiality restrictions applicable
during and after the period of employment, non-solicitation of
employees during the period of employment and for two years
following termination, and non-competition and other
non-solicitation provisions applicable during the period of
employment and, upon payment of an additional sum equal to the
executives annual base salary for each year, for up to two
years following termination of employment.
The following table describes the potential payments to the
listed named executive officers upon such executives
termination without cause under their respective employment
agreements. No additional or alternative salary or benefits
would be provided upon a change of control.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Name
|
|
Salary(1)
|
|
Acceleration(2)
|
|
Benefits(3)
|
|
Carlos E. Agüero, CEO
|
|
$
|
362,250
|
|
|
$
|
267,867
|
|
|
$
|
17,486
|
|
Eric W. Finlayson, CFO
|
|
$
|
165,600
|
|
|
$
|
118,353
|
|
|
$
|
17,486
|
|
Michael J. Drury
|
|
$
|
248,400
|
|
|
$
|
199,533
|
|
|
$
|
17,486
|
|
Arnold S. Graber
|
|
$
|
232,875
|
|
|
$
|
164,547
|
|
|
$
|
17,486
|
|
|
|
|
(1) |
|
Represents one year of base salary as of December 31, 2009. |
|
(2) |
|
Calculated based on a change of control taking place as of
December 31, 2009 and assuming a price per share of $4.92,
which was the closing price for our stock on December 31,
2009. Represents the full acceleration of unvested restricted
stock and stock options held by such named executive officer at
that date. |
|
(3) |
|
Under their respective employment agreements, each named
executive officer is entitled to twelve months of continued
COBRA health benefits upon termination without cause or for good
reason. |
DIRECTOR
COMPENSATION
Employee directors do not receive additional compensation for
their services as directors. The non-employee members of our
Board of Directors are reimbursed for travel, lodging and other
reasonable expenses incurred in attending board or committee
meetings. The following table summarizes compensation that our
directors earned during 2009 for services as members of our
Board.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
Stock
|
|
Options
|
|
All Other
|
|
|
Name(1)
|
|
Paid in Cash
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Total
|
|
Earl B. Cornette(2)
|
|
$
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,000
|
|
Bret R. Maxwell(3)
|
|
|
|
|
|
|
|
|
|
$
|
2,844
|
|
|
|
|
|
|
$
|
2,844
|
|
Walter H. Barandiaran(4)
|
|
|
|
|
|
|
|
|
|
$
|
2,844
|
|
|
|
|
|
|
$
|
2,844
|
|
Paul A. Garrett(5)
|
|
$
|
61,500
|
|
|
$
|
17,525
|
(6)
|
|
$
|
34,170
|
|
|
|
|
|
|
$
|
113,195
|
|
|
|
|
(1) |
|
Directors Carlos E. Agüero and Michael J. Drury are also
executive officers of the Company. They do not receive
additional compensation for their services as directors. |
|
(2) |
|
Mr. Cornette retired from the Board as of the close of
business December 31, 2009. |
|
(3) |
|
Mr. Maxwell was granted options for 10,000 shares of
our common stock on August 17, 2009 at an exercise price of
$3.88. Those options had an initial vest of one-twelfth of the
grant on the date occurring three months after the date of
grant, and thereafter vest in equal monthly installments until
the third anniversary of the date of grant, and expire on
August 17, 2014. |
|
(4) |
|
Mr. Barandiaran was granted options for 10,000 shares
of our common stock on August 17, 2009 at an exercise price
of $3.88. Those options had an initial vest of one-twelfth of
the grant on the date occurring three months |
65
|
|
|
|
|
after the date of grant, and thereafter vest in equal monthly
installments until the third anniversary of the date of grant,
and expire on August 17, 2014. |
|
(5) |
|
Mr. Garrett was initially elected a director March 16,
2005. As an inducement to join the Board and to chair its Audit
Committee, Mr. Garrett was granted options for
10,000 shares of our common stock at an exercise price of
$3.50 per share on that date. The options vested in equal
monthly installments over a period of two years and expire on
March 16, 2010. As further consideration for his services
as chairman of our Audit Committee he was granted options for an
additional 15,000 shares of our common stock on May 1,
2007 at an exercise price of $6.29. Those options vest in equal
monthly installments over a period of three years and expire on
May 1, 2012. He was also granted 5,000 shares of
restricted stock on March 31, 2008. These shares vest in
equal quarterly installments over a period of three years
commencing on the date of grant. He was also granted options for
an additional 7,500 shares of our common stock on
July 9, 2008 at an exercise price of $14.02. Those options
vest in equal monthly installments over a period of three years
and expire on July 9, 2013. He was also granted options for
an additional 12,000 shares of our common stock on
August 17, 2009 at an exercise price of $3.88. Those
options had an initial vest of one-twelfth of the grant on the
date occurring three months after the date of grant, and
thereafter vest in equal monthly installments until the third
anniversary of the date of grant, and expire on August 17,
2014. In 2009 he received $30,000 for his services as a
Director, payable in monthly installments of $2,500, an annual
fee of $12,000 for his services as chairman of our Audit
Committee, payable in monthly installments of $1,000, and an
additional payment of $1,500 for each board meeting attended. |
|
(6) |
|
Value based on the amount recognized for financial statement
reporting purposes for the year ending December 31, 2009 in
accordance with ASC Topic 718. |
Mr. Cornette received a payment of $1,000 per meeting of
the Board of Directors attended.
Effective March 9, 2010, non-employee directors receive an
annual fee of $24,000, and members of the Audit Committee (other
than the chair) receive an annual fee of $6,000, both fees
payable in arrears in equal quarterly installments. Non-employee
directors will also be paid $1,750 for each Board meeting
attended in person and $750 for each Board meeting attended
telephonically. Independent directors are also entitled to an
annual grant of 15,000 stock options on April 1 of each
year commencing in 2010. Mr. Garrett receives an annual fee
of $18,000 for his services as chairman of our Audit Committee,
payable in equally quarterly installments. Mr. Maxwell and
Mr. Barandiaran have been granted stock options but
otherwise have not previously been compensated for service to us
or for memberships on committees of the Board.
Limitation
of Liability and Indemnification
As permitted by the Delaware General Corporation Law, we have
adopted provisions in our Fourth Amended and Restated
Certificate of Incorporation and bylaws that limit or eliminate
the personal liability of our directors. Consequently, a
director will not be personally liable to us or our stockholders
for monetary damages or breach of fiduciary duty as a director,
except for liability for:
|
|
|
|
|
any breach of the directors duty of loyalty to us or our
stockholders;
|
|
|
|
any act or omission not in good faith or that involves
intentional misconduct or a knowing violation of law;
|
|
|
|
any unlawful payments related to dividends or unlawful stock
repurchases, redemptions or other distributions; or
|
|
|
|
any transaction from which the director derived an improper
personal benefit.
|
These limitations of liability do not alter director liability
under the federal securities laws and do not affect the
availability of equitable remedies such as an injunction or
rescission.
In addition, our bylaws provide that:
|
|
|
|
|
we will indemnify our directors, officers and, in the discretion
of our board of directors, certain employees to the fullest
extent permitted by the Delaware General Corporation
Law; and
|
66
|
|
|
|
|
we will advance expenses, including attorneys fees, to our
directors and, in the discretion of our board of directors, to
our officers and certain employees, in connection with legal
proceedings, subject to limited exceptions.
|
We maintain directors and officers liability
insurance to support these indemnity obligations.
Any amendment to or repeal of these provisions will not
eliminate or reduce the effect of these provisions in respect of
any act or failure to act, or any cause of action, suit or claim
that would accrue or arise prior to any amendment or repeal or
adoption of an inconsistent provision. If the Delaware General
Corporation Law is amended to provide for further limitations on
the personal liability of directors of corporations, then the
personal liability of our directors will be further limited to
the greatest extent permitted by the Delaware General
Corporation Law.
At this time there is no pending litigation or proceeding
involving any of our directors or officers where indemnification
will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim
for such indemnification.
Compensation
Committee Interlocks and Insider Participation
The members of the Compensation Committee through 2009 were
Messrs. Maxwell (Committee Chair), Cornette, and
Barandiaran. As of March 9, 2010, Messrs. Maxwell
(Committee Chair), Barandiaran and Duffy comprise the committee.
None of the members of our Compensation Committee has at any
time been one of our officers or employees. None of our
executive officers serves as a director or compensation
committee member of any entity that has one or more of its
executive officers serving as one of our Directors or on our
Compensation Committee.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
The following table sets forth information with respect to the
beneficial ownership of shares of the Companys common
stock as of March 1, 2010 for (i) each person known by
us to beneficially own more than 5% of the Companys common
stock, (ii) each of our Directors and each of our named
executive officers listed in the Summary Compensation Table
under the caption Executive Compensation, and
(iii) all of our Directors and named executive officers as
a group. The number of shares beneficially owned by each
stockholder and each stockholders percentage ownership is
based on 46,426,557 shares of common stock outstanding as
of March 1, 2010. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange
Commission (the SEC) and generally includes any
shares over which a person possesses sole or shared voting or
investment power. Except as otherwise indicated by footnote, to
our knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of common stock
beneficially owned by them. In calculating the number of shares
beneficially owned by a person and the percentage ownership of
that person, shares of common stock subject to warrants and
options held by that person that are exercisable as of the date
of this table, or will become exercisable within 60 days
thereafter, are deemed outstanding, while such shares are not
deemed outstanding for purposes of calculating percentage
ownership of any other person. Unless otherwise stated, the
67
address of each person in the table is
c/o Metalico,
Inc., 186 North Avenue East, Cranford, New Jersey 07016.
Beneficial ownership representing less than 1% of the
outstanding shares of common stock is denoted with an
*.
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
Outstanding
|
|
|
Number of
|
|
Common
|
Name and Address of Beneficial Owner
|
|
Shares(1)
|
|
Stock(2)
|
|
5% Shareholders(3)
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
Carlos E. Agüero,
Director and Chairman, President and Chief Executive
Officer
|
|
|
6,289,430
|
(4)
|
|
|
13.5
|
%
|
Michael J. Drury,
Director and Executive Vice President
|
|
|
338,783
|
(5)
|
|
|
|
*
|
Bret R. Maxwell, Director(6)
|
|
|
1,523,048
|
|
|
|
3.3
|
%
|
c/o MK Capital 1033
Skokie Boulevard, Suite 430
Northbrook, Illinois 60062
|
|
|
|
|
|
|
|
|
Walter H. Barandiaran, Director(7)
|
|
|
804,618
|
|
|
|
1.7
|
%
|
c/o The Argentum Group 60
Madison Avenue, 7th Floor
New York, New York 10010
|
|
|
|
|
|
|
|
|
Paul A. Garrett, Director
|
|
|
52,416
|
(8)
|
|
|
|
*
|
Arnold S. Graber,
Executive Vice President, General Counsel and Secretary
|
|
|
137,139
|
(9)
|
|
|
|
*
|
Eric W. Finlayson,
Senior Vice President and Chief Financial Officer
|
|
|
151,589
|
(10)
|
|
|
|
*
|
Executive Officers and Directors as a group
|
|
|
9,357,824
|
|
|
|
19.9
|
%
|
(7 persons)
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes shares of common stock held directly as well as by
spouses or minor children, in trust and other indirect
ownership, over which shares the individuals effectively
exercise sole voting and investment power. |
|
(2) |
|
Assumes all warrants and vested options are exercised with
respect to such holder. |
|
(3) |
|
None except Carlos E. Agüero, a Director and our Chairman,
President and Chief Executive Officer. |
|
(4) |
|
Includes 10,000 shares of unvested restricted stock and
233,055 shares issuable upon the exercise of options. |
|
(5) |
|
Includes 5,000 shares of unvested restricted stock,
135,278 shares issuable upon the exercise of options. |
|
(6) |
|
Includes (i) shares held by Infrastructure &
Environmental Private Equity Fund III, LP
(1,102,537 shares) and Environmental &
Information Technology Private Equity Fund III
(275,517 shares),venture capital funds for which
Mr. Maxwell is a common ultimate controlling party,
(ii) 142,772 common shares held by the Bret R. Maxwell
Revocable Trust., and (iii) 2,222 shares issuable upon
the exercise of options. |
|
(7) |
|
Shares are held by venture capital funds with which
Mr. Barandiaran is affiliated through his position as a
managing partner of The Argentum Group. The Argentum Group is a
common ultimate controlling party of the two funds, which hold
the Companys stock directly as follows: Argentum Capital
Partners II, L.P. (600,000 shares) and Argentum Capital
Partners, L.P. (202,396 shares) and 2,222 shares
issuable to Mr. Barandiaran upon the exercise of options. |
|
(8) |
|
Includes 1,667 shares of unvested restricted stock and
22,250 shares issuable upon the exercise of options. |
|
(9) |
|
Includes 2,333 shares of unvested restricted stock and
77,639 shares issuable upon the exercise of options. |
|
|
|
(10) |
|
Includes 1,833 shares of unvested restricted stock and
62,889 shares issuable upon the exercise of options. |
|
|
Item 13.
|
Certain
Relationships and Related Party Transactions and Director
Independence
|
In the ordinary course of our business and in connection with
our financing activities, we have entered into a number of
transactions with our directors, officers and certain 5% or
greater shareholders. All of the transactions set
68
forth below were approved by the unanimous vote of our Board of
Directors with interested directors abstaining. We believe that
we have executed all of the transactions set forth below on
terms no less favorable to us than we could have obtained from
unaffiliated third parties. Our Board of Directors is
responsible for approving related party transactions, as defined
in applicable rules by the Securities and Exchange Commission.
As a matter of Company policy, all related party transactions
are reviewed by the Audit Committee, which then reports its
findings to the full Board.
|
|
|
|
|
Carlos E. Agüero, our Chairman, President and Chief
Executive Officer, is a limited partner of
Infrastructure & Environmental Private Equity
Fund III, L.P., and of Argentum Capital Partners II, L.P.,
two of the Companys venture capital investors. His
holdings in each fund are less than 1% of such funds
limited partnership interests.
|
|
|
|
Walter H. Barandiaran, a director of the Company, is a managing
partner of The Argentum Group. The Argentum Group, the ultimate
controlling party of Argentum Capital Partners II, L.P. and
Argentum Capital Partners, L.P. which hold certain interests in
the Company, also controls partnership interests in two other
investment funds that hold a portion of the Companys
stock, Infrastructure & Environmental Private Equity
Fund III, LP, and Environmental & Information
Technology Private Equity Fund III.
|
|
|
|
The Company owns 33.1% of the outstanding stock of Beacon Energy
Holdings Inc., a corporation that trades on the OTC
Bulletin Board, pursuant to investments approved by our
Board of Directors on November 3, 2006 and August 10,
2007. In addition, Mr. Agüero holds approximately 9.7%
of the stock of Beacon and serves as the chairman of its board
of directors. The Argentum Group holds approximately 6.7% of the
stock of Beacon through the same funds that hold the
Companys stock. Mr. Drury holds less than 1% of the
stock of Beacon. The Beacon investment was reviewed and
recommended to the Board by a committee of independent directors
having no direct or indirect interests in Beacon. The interests
of Mr. Agüero and Mr. Drury were fully disclosed
to the committee prior to its review of the investments and to
the Board prior to its approval of the investments, and both
abstained from the Boards votes on the matter. The
Argentum Group acquired its interests in Beacon in 2008.
|
Director
Independence
The Board of Directors has determined that each of the Directors
other than Carlos E. Agüero and Michael J. Drury is
independent under the applicable standards of the
Securities and Exchange Commission and NYSE Amex.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The aggregate fees, including billed and estimated unbilled
amounts applicable to the Company and its subsidiaries for the
year ended December 31, 2009, of the Companys
principal accounting firm, J.H Cohn LLP and for the year ending
December 31, 2008 by McGladrey & Pullen LLP and
its affiliate RSM McGladrey, Inc., were approximately:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Audit Fees
|
|
$
|
525,000
|
|
|
$
|
879,135
|
|
Audit Related Fees
|
|
|
18,835
|
|
|
|
31,375
|
|
Tax Fees
|
|
|
160,675
|
|
|
|
181,525
|
|
All Other
|
|
|
|
|
|
|
|
|
Audit Fees and Tax Fees comparability is generally affected by
the SEC filings made or contemplated and the volume and
materiality of the Companys business acquisitions.
Audit Fees. Consists of fees for professional
services rendered for the audit of our financial statements, the
audit of internal control over financial reporting, assistance
or review of SEC filings, proposed SEC filings and other
statutory and regulatory filings, preparation of comfort letters
and consents and review of the interim financial statements
included in quarterly reports.
69
Audit-Related Fees. Consists of fees for
assurance and related services that are reasonably related to
the performance of the audit or review of our financial
statements that are not reported under Audit Fees,
primarily related to consultations on financial accounting and
reporting standards.
Tax Fees. Consists of fees for professional
services rendered related to tax compliance, tax advice or tax
planning.
All Other Fees. Consists of fees for all other
professional services, not covered by the categories noted above.
Pursuant to the Companys Audit Committee policies, all
audit and permissible non-audit services provided by the
independent auditors and their affiliates must be pre-approved.
These services may include audit services, audit-related
services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of service.
The independent auditor and management are required to
periodically report to the Audit Committee of the Company
regarding the extent of services provided by the independent
auditor in accordance with this policy.
In considering the nature of the services provided by the
independent registered public accountant, the Audit Committee of
the Company determined that such services are compatible with
the provision of independent audit services. The Audit Committee
of the Company discussed these services with the independent
registered public accountant and Company management to determine
that they are permitted under the rules and regulations
concerning auditors independence promulgated by the SEC to
implement the Sarbanes-Oxley Act of 2002, as well as rules of
the American Institute of Certified Public Accountants.
|
|
Item 15.
|
Financial
Statements and Exhibits
|
The following financial statements are included as part of this
Form 10-K
beginning on
page F-1:
Index to
Financial Statements
|
|
|
|
|
|
|
Page
|
|
Index to Audited Consolidated Financial Report of Metalico, Inc.
and subsidiaries included in this
Form 10-K:
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Report of Independent Registered Public Accounting Firm on the
Consolidated Financial Statements
|
|
|
F-3
|
|
Consolidated Balance Sheets as of December 31, 2009 and 2008
|
|
|
F-4
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008 and 2007
|
|
|
F-5
|
|
Consolidated Statements of Stockholders Equity for the
Years Ended December 31, 2009, 2008 and 2007
|
|
|
F-6
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
|
|
|
F-7
|
|
Notes to Consolidated Financial Statements
|
|
|
F-8
|
|
The following exhibits are filed as part of this registration
statement:
|
|
|
|
|
|
3
|
.1
|
|
Fourth Amended and Restated Certificate of Incorporation of
Metalico, Inc.; previously filed as Appendix A to Proxy
Statement on Schedule 14A for the Companys 2008
Annual Meeting of Stockholders filed May 15, 2008 and
incorporated herein by reference
|
|
3
|
.2
|
|
Third Amended and Restated Bylaws of Metalico, Inc.; previously
filed as Exhibit 3.2 to Current Report on
Form 8-K
filed November 3, 2005 and incorporated herein by reference
|
|
4
|
.1
|
|
Specimen Common Stock Certificate; previously filed as
Exhibit 4.1 to Form 10 filed December 20, 2004
and incorporated herein by reference
|
70
|
|
|
|
|
|
10
|
.3*
|
|
Employment Agreement dated as of January 1, 2010 between
Metalico, Inc. and Carlos E. Agüero; previously filed as
Exhibit 10.3 to Current Report on
Form 8-K
filed December 21, 2009 and incorporated herein by reference
|
|
10
|
.4*
|
|
Employment Agreement dated as of January 1, 2010 between
Metalico, Inc. and Michael J. Drury; previously filed as
Exhibit 10.4 to Current Report on
Form 8-K
filed December 21, 2009 and incorporated herein by reference
|
|
10
|
.5*
|
|
Employment Agreement dated as of January 1, 2010 between
Metalico, Inc. and Arnold S. Graber; previously filed as
Exhibit 10.5 to Current Report on
Form 8-K
filed December 21, 2009 and incorporated herein by reference
|
|
10
|
.6*
|
|
Employment Agreement dated as of January 1, 2010 between
Metalico, Inc. and Eric W. Finlayson; previously filed as
Exhibit 10.6 to Current Report on
Form 8-K
filed December 21, 2009 and incorporated herein by reference
|
|
10
|
.7*
|
|
Metalico, Inc. 1997 Long-Term Incentive Plan; previously filed
as Exhibit 10.7 to Form 10 filed December 20,
2004 and incorporated herein by reference
|
|
10
|
.8*
|
|
Metalico, Inc. Executive Bonus Plan; previously filed as
Exhibit 10.8 to Form 10 filed December 20, 2004
and incorporated herein by reference
|
|
10
|
.9
|
|
Credit Agreement, dated as of February 26, 2010 but entered
into March 2, 2010, by and among Metalico, Inc. and its
subsidiaries signatory thereto as borrowers and guarantors and
JPMorgan Chase Bank, N.A., as administrative agent, and the
lenders party thereto; previously filed as Exhibit 10.1 to
Current Report on
Form 8-K
filed March 4, 2010 and incorporated herein by reference
|
|
10
|
.15*
|
|
Form of Employee Incentive Stock Option Agreement under
Metalico, Inc. 1997 Long-Term Incentive Plan; previously filed
as Exhibit 99.1 to Current Report on
Form 8-K
filed March 17, 2005 and incorporated herein by reference
|
|
10
|
.18*
|
|
Metalico 2006 Long-Term Incentive Plan; previously filed as
Appendix A to Proxy Statement on Schedule 14A for the
Companys 2006 Annual Meeting of Stockholders filed
April 13, 2006 and incorporated herein by reference
|
|
10
|
.19*
|
|
Form of Employee Incentive Stock Option Agreement under
Metalico, Inc. 2006 Long-Term Incentive Plan; previously filed
as Exhibit 10.19 to Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2006 and incorporated herein
by reference
|
|
10
|
.20*
|
|
Form of Employee Restricted Stock Grant Agreement under
Metalico, Inc. 2006 Long-Term Incentive Plan; previously filed
as Exhibit 10.20 to Annual Report on
Form 10-K
for the year ended December 31, 2007 and incorporated
herein by reference
|
|
10
|
.21
|
|
Securities Purchase Agreement dated as of June 21, 2007
among Metalico, Inc. and the investors named therein; previously
filed as Exhibit 10.1 to Current Report on
Form 8-K
filed June 22, 2007 and incorporated herein by reference
|
|
10
|
.22
|
|
Registration Rights Agreement dated as of June 21, 2007
among Metalico, Inc. and the investors named therein; previously
filed as Exhibit 10.2 to Current Report on
Form 8-K
filed June 22, 2007 and incorporated herein by reference
|
|
10
|
.23
|
|
Form of Amended and Restated Stock Subscription Agreement and
Stockholder Agreement dated November 30, 2006 among
AgriFuel Co. (AgriFuel), the purchasers of AgriFuel
stock signatory thereto, and Metalico, Inc.; previously filed as
Exhibit 10.1 to Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2007 and incorporated herein
by reference
|
|
10
|
.24
|
|
Form of Amendment No. 1 dated August 22, 2007 to
Amended and Restated Stock Subscription Agreement and
Stockholder Agreement dated November 30, 2006 among
AgriFuel Co., nka Beacon Energy Corp. (Beacon), the
purchasers of Beacon stock signatory thereto, and Metalico,
Inc.; previously filed as Exhibit 10.1 to Quarterly Report
on
Form 10-Q
for the quarter ended September 30, 2007 and incorporated
herein by reference
|
|
10
|
.25
|
|
Form of Series B Stock Subscription Agreement and
Stockholder Agreement dated August 22, 2007 among Beacon
Energy Corp. (Beacon), the purchasers of Beacon
stock signatory thereto, and Metalico, Inc.; previously filed as
Exhibit 10.2 to Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007 and incorporated
herein by reference
|
71
|
|
|
|
|
|
10
|
.26
|
|
Form of Subscription and Investment Agreement
(Series C) dated May 15, 2008 among Beacon Energy
Corp., the investors identified therein, and Metalico, Inc.;
previously filed as Exhibit 10.26 to Quarterly Report on
Form 10-Q
for quarter ended June 30, 2008 and incorporated herein by
reference
|
|
10
|
.28
|
|
Securities Purchase Agreement dated as of April 23, 2008
among Metalico, Inc. and the investors named therein; previously
filed as Exhibit 10.1 to Current Report on
Form 8-K/A
filed April 24, 2008 and incorporated herein by reference
|
|
10
|
.29
|
|
Registration Rights Agreement dated as of April 23, 2008
among Metalico, Inc. and the investors named therein; previously
filed as Exhibit 10.2 to Current Report on
Form 8-K/A
filed April 24, 2008 and incorporated herein by reference
|
|
10
|
.30
|
|
Form of Senior Unsecured Convertible Note issued to investors
party to Agreements identified in Exhibits 10.27 and 10.28
above, previously filed as Exhibit 10.3 to Current Report
on
Form 8-K
filed May 5, 2008 and incorporated herein by reference
|
|
10
|
.31
|
|
Form of Common Stock Purchase Warrant issued to investors party
to Agreements identified in Exhibits 10.27 and 10.28 above,
previously filed as Exhibit 10.4 to Current Report on
Form 8-K/A
filed April 24, 2008 and incorporated herein by reference
|
|
12
|
.1
|
|
Computation of ratio of earnings to fixed charges
|
|
14
|
.1
|
|
Code of Business Conduct and Ethics, available on the
Companys website (www.metalico.com) and incorporated
herein by reference.
|
|
21
|
.1
|
|
List of Subsidiaries of Metalico, Inc.
|
|
23
|
.1
|
|
Consent of J.H. Cohn LLP, Independent Registered Public
Accounting Firm.
|
|
23
|
.2
|
|
Consent of McGladrey & Pullen, LLP, Independent Registered
Public Accounting Firm.
|
|
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 amended
|
|
31
|
.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
|
|
32
|
.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 Code
|
|
32
|
.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
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
METALICO, INC.
(Registrant)
Carlos E. Agüero
Chairman, President and Chief Executive Officer
Date: March 16, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Carlos
E. Agüero
Carlos
E. Agüero
|
|
Chairman of the Board of Directors, President, Chief Executive
Officer and Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Eric
W. Finlayson
Eric
W. Finlayson
|
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer)
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Michael
J. Drury
Michael
J. Drury
|
|
Executive Vice President and Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Bret
R. Maxwell
Bret
R. Maxwell
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Walter
H. Barandiaran
Walter
H. Barandiaran
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Paul
A. Garrett
Paul
A. Garrett
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Sean
P. Duffy
Sean
P. Duffy
|
|
Director
|
|
March 16, 2010
|
73
INDEX TO
FINANCIAL STATEMENTS
The following financial statements are included as part of this
Form 10-K
beginning on
page F-1:
|
|
|
|
|
|
|
Page
|
|
Audited Consolidated Financial Statements of Metalico, Inc.
and Subsidiaries:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
F-8
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Metalico, Inc.
We have audited the consolidated balance sheet of Metalico, Inc.
and subsidiaries (the Company) as of December 31, 2009, and
the related consolidated statements of operations,
stockholders equity and cash flows for the year then
ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2009, and its
results of operations and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
As described in Note 25 to the consolidated financial
statements, on January 1, 2009, the Company adopted new
accounting guidance related to noncontrolling interests.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and our report dated March 16, 2010,
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
/s/ J.H. Cohn LLP
Roseland, New Jersey
March 16, 2010
F-2
Report of
Independent Registered Public Accounting Firm on the
Consolidated Financial Statements
To the Board of Directors and Stockholders
Metalico, Inc.
We have audited the consolidated balance sheets of Metalico,
Inc. and subsidiaries (the Company) as of December 31,
2008, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the two
years in the period ended December 31, 2008. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2008, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 2008, in conformity
with accounting principles generally accepted in the United
States of America.
As described in Note 25 to the consolidated financial
statements, on January 1, 2009, the Company adopted new
accounting guidance related to noncontrolling interests and
retrospectively adjusted the consolidated financial statements
for the changes.
Peoria, Illinois
March 16, 2009, except the retrospective adoption of new
accounting guidance related to
noncontrolling interests described in Note 25, as to which
the date is March 16, 2010
McGladrey & Pullen LLP is a member firm of RSM
International -
an affiliation of separate and independent legal entities.
F-3
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ thousands)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,938
|
|
|
$
|
62,933
|
|
Trade receivables, less allowance for doubtful accounts 2009
$1,187; 2008 $1,896
|
|
|
30,977
|
|
|
|
20,503
|
|
Inventories
|
|
|
52,614
|
|
|
|
31,772
|
|
Prepaid expenses and other current assets
|
|
|
4,333
|
|
|
|
3,413
|
|
Income taxes receivable
|
|
|
6,540
|
|
|
|
11,112
|
|
Deferred income taxes
|
|
|
33
|
|
|
|
3,626
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
99,435
|
|
|
|
133,359
|
|
Property and Equipment, net
|
|
|
75,253
|
|
|
|
80,083
|
|
Goodwill
|
|
|
69,301
|
|
|
|
69,451
|
|
Other Intangibles, net
|
|
|
41,602
|
|
|
|
43,604
|
|
Other Assets, net
|
|
|
7,825
|
|
|
|
13,796
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
293,416
|
|
|
$
|
340,293
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of other long-term debt
|
|
$
|
8,515
|
|
|
$
|
30,897
|
|
Accounts payable
|
|
|
12,526
|
|
|
|
10,875
|
|
Accrued expenses and other current liabilities
|
|
|
7,513
|
|
|
|
24,779
|
|
Income taxes payable
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
29,362
|
|
|
|
66,551
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Senior unsecured convertible notes payable
|
|
|
80,374
|
|
|
|
98,403
|
|
Other long-term debt, less current maturities
|
|
|
27,904
|
|
|
|
55,409
|
|
Accrued expenses and other long-term liabilities
|
|
|
5,519
|
|
|
|
2,958
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
113,797
|
|
|
|
156,770
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
143,159
|
|
|
|
223,321
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Notes 17 and 18)
|
|
|
|
|
|
|
|
|
Redeemable Common Stock
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
46
|
|
|
|
36
|
|
Additional paid-in capital
|
|
|
171,892
|
|
|
|
131,248
|
|
Accumulated deficit
|
|
|
(20,972
|
)
|
|
|
(17,527
|
)
|
Accumulated other comprehensive loss
|
|
|
(709
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
150,257
|
|
|
|
112,972
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
293,416
|
|
|
$
|
340,293
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands, except share data)
|
|
|
Revenue
|
|
$
|
291,733
|
|
|
$
|
818,195
|
|
|
$
|
334,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
239,647
|
|
|
|
756,099
|
|
|
|
278,256
|
|
Selling, general and administrative expenses
|
|
|
25,994
|
|
|
|
30,146
|
|
|
|
20,315
|
|
Depreciation and amortization
|
|
|
13,240
|
|
|
|
12,864
|
|
|
|
6,279
|
|
Impairment charges
|
|
|
|
|
|
|
59,043
|
|
|
|
|
|
Gain on acquisition
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
278,015
|
|
|
|
858,152
|
|
|
|
304,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
13,718
|
|
|
|
(39,957
|
)
|
|
|
29,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial and other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(15,857
|
)
|
|
|
(17,355
|
)
|
|
|
(5,883
|
)
|
Financial instruments fair value adjustment
|
|
|
(2,035
|
)
|
|
|
1,943
|
|
|
|
|
|
Equity in loss of unconsolidated investee
|
|
|
(3,839
|
)
|
|
|
(3,419
|
)
|
|
|
|
|
Gain on debt extinguishment
|
|
|
8,072
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(1,963
|
)
|
|
|
410
|
|
|
|
509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,622
|
)
|
|
|
(18,421
|
)
|
|
|
(5,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before provision
(benefit) for income taxes and noncontrolling interest
|
|
|
(1,904
|
)
|
|
|
(58,378
|
)
|
|
|
23,989
|
|
Provision (benefit)for federal and state income taxes
|
|
|
1,736
|
|
|
|
(15,535
|
)
|
|
|
8,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(3,640
|
)
|
|
|
(42,843
|
)
|
|
|
15,314
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations less applicable (expense) credit
for income taxes 2009 ($162); 2008 $753; 2007 $600;
|
|
|
195
|
|
|
|
(1,230
|
)
|
|
|
(918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(3,445
|
)
|
|
|
(44,073
|
)
|
|
|
14,396
|
|
Noncontrolling interest
|
|
|
|
|
|
|
413
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Company
|
|
$
|
(3,445
|
)
|
|
$
|
(43,660
|
)
|
|
$
|
14,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(3,640
|
)
|
|
|
(42,430
|
)
|
|
|
15,671
|
|
Income (loss) from discontinued operations
|
|
|
195
|
|
|
|
(1,230
|
)
|
|
|
(918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,445
|
)
|
|
$
|
(43,660
|
)
|
|
$
|
14,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Company shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(1.21
|
)
|
|
$
|
0.54
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
(1.21
|
)
|
|
$
|
0.53
|
|
Loss from discontinued operations
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.25
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
Additional
|
|
|
Deficit)
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Stock-New
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Total
|
|
|
|
($ thousands, except share data)
|
|
|
Balance, January 1, 2007
|
|
$
|
34,064
|
|
|
$
|
12
|
|
|
$
|
28,524
|
|
|
$
|
11,380
|
|
|
$
|
(267
|
)
|
|
|
|
|
|
$
|
4,726
|
|
|
$
|
78,439
|
|
Compensation recorded for options grants
|
|
|
|
|
|
|
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691
|
|
Sale of 5,245,999 shares of common stock
|
|
|
|
|
|
|
5
|
|
|
|
33,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,939
|
|
Investment in Beacon Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,612
|
|
|
|
3,612
|
|
Gain on sale of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Adjustment for dilution in subsidiary stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
(201
|
)
|
Noncontrolling interest acquired through acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Issuance of 14,372,187 shares of common stock on preferred
stock conversion
|
|
|
(34,064
|
)
|
|
|
14
|
|
|
|
34,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 198,899 shares of common stock in exchange for
options exercised
|
|
|
|
|
|
|
1
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544
|
|
Issuance of 166,235 shares of common stock in exchange for
warrants exercised
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,753
|
|
|
|
|
|
|
|
14,753
|
|
|
|
(357
|
)
|
|
|
14,396
|
|
Other comprehensive loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
|
|
|
|
32
|
|
|
|
98,188
|
|
|
|
26,133
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
7,773
|
|
|
|
131,790
|
|
Sale of 2,923,077 shares of common stock and related
warrants net of offering costs and fair value of put warrants
|
|
|
|
|
|
|
3
|
|
|
|
21,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,522
|
|
Issuance of 622,222 shares of common stock for acquisition
net of fair value of make-whole provision
|
|
|
|
|
|
|
1
|
|
|
|
7,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,832
|
|
Issuance of 311,112 shares of common stock for amendment to
make-whole agreements on acquisition
|
|
|
|
|
|
|
|
|
|
|
544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
544
|
|
Issuance of 500,000 shares of redeemable common stock for
acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 175,675 shares of common stock in exchange for
options exercised
|
|
|
|
|
|
|
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
677
|
|
Issuance of 168,500 shares of restricted common stock, less
10,450 shares forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,994
|
|
Investment in Beacon Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,574
|
|
|
|
5,574
|
|
Noncontrolling interest acquired through acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Gain on sale of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
495
|
|
Adjustment for dilution in subsidiary stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(785
|
)
|
|
|
(785
|
)
|
Deconsolidation of Beacon Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,142
|
)
|
|
|
(12,142
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,660
|
)
|
|
|
|
|
|
|
(43,660
|
)
|
|
|
(413
|
)
|
|
|
(44,073
|
)
|
Other comprehensive loss, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(449
|
)
|
|
|
(449
|
)
|
|
|
|
|
|
|
(449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(44,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
|
|
|
|
36
|
|
|
|
131,248
|
|
|
|
(17,527
|
)
|
|
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
112,972
|
|
Sale of 6,000,000 shares of common stock
|
|
|
|
|
|
|
6
|
|
|
|
24,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,795
|
|
Issuance of 159,393 shares of common stock for amendment to
make-whole agreements on acquisition
|
|
|
|
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
288
|
|
Termination of redemption option on 500,000 shares of
redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Issuance of 3,708,906 shares of common stock in exchange
for convertible notes
|
|
|
|
|
|
|
4
|
|
|
|
8,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
Issuance of 134,665 shares of common stock in exchange for
options exercised
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,489
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,445
|
)
|
|
|
|
|
|
|
(3,445
|
)
|
|
|
|
|
|
|
(3,445
|
)
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,369
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
171,892
|
|
|
$
|
(20,972
|
)
|
|
$
|
(709
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
150,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
($ thousands)
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,445
|
)
|
|
$
|
(44,073
|
)
|
|
$
|
14,396
|
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
10,318
|
|
|
|
8,809
|
|
|
|
5,134
|
|
Amortization
|
|
|
3,797
|
|
|
|
4,225
|
|
|
|
1,180
|
|
Amortization of put option discounts
|
|
|
270
|
|
|
|
508
|
|
|
|
239
|
|
Amortization of note payable discounts
|
|
|
73
|
|
|
|
55
|
|
|
|
|
|
Impairment loss
|
|
|
|
|
|
|
59,043
|
|
|
|
|
|
Provision for doubtful accounts receivable
|
|
|
3
|
|
|
|
1,465
|
|
|
|
168
|
|
Inventory markdowns
|
|
|
|
|
|
|
7,821
|
|
|
|
|
|
(Recovery) provision for loss on vendor advances
|
|
|
(147
|
)
|
|
|
4,703
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,463
|
|
|
|
(16,363
|
)
|
|
|
(391
|
)
|
Net (gain) loss on sale and disposal of property and equipment
|
|
|
(29
|
)
|
|
|
501
|
|
|
|
210
|
|
Gain on acquisition
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
Gain on legal settlement
|
|
|
(1,266
|
)
|
|
|
|
|
|
|
|
|
Gain on debt extinguishment
|
|
|
(8,072
|
)
|
|
|
|
|
|
|
|
|
Equity in loss of unconsolidated investee
|
|
|
3,839
|
|
|
|
3,419
|
|
|
|
|
|
Financial instruments fair value adjustment
|
|
|
2,035
|
|
|
|
(1,943
|
)
|
|
|
|
|
Compensation expense on restricted stock, stock options and
warrants issued
|
|
|
2,489
|
|
|
|
1,994
|
|
|
|
691
|
|
Excess tax benefit from stock-based compensation
|
|
|
37
|
|
|
|
(107
|
)
|
|
|
(57
|
)
|
Deferred financing costs expensed
|
|
|
542
|
|
|
|
|
|
|
|
|
|
Change in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(9,611
|
)
|
|
|
23,820
|
|
|
|
(15,044
|
)
|
Inventories
|
|
|
(20,249
|
)
|
|
|
24,460
|
|
|
|
(17,216
|
)
|
Prepaid expenses and other current assets
|
|
|
6,098
|
|
|
|
309
|
|
|
|
(1,940
|
)
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and income taxes payable
|
|
|
(14,995
|
)
|
|
|
(19,951
|
)
|
|
|
4,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(25,716
|
)
|
|
|
58,695
|
|
|
|
(8,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment
|
|
|
333
|
|
|
|
118
|
|
|
|
27
|
|
Purchase of property and equipment
|
|
|
(3,022
|
)
|
|
|
(11,143
|
)
|
|
|
(11,632
|
)
|
(Increase) decrease in other assets
|
|
|
(269
|
)
|
|
|
600
|
|
|
|
2,205
|
|
Investment in unconsolidated subsidiary
|
|
|
|
|
|
|
(600
|
)
|
|
|
(3,600
|
)
|
Cash restricted for investment
|
|
|
|
|
|
|
1,874
|
|
|
|
(6,112
|
)
|
Cash paid for business acquisitions, less cash acquired
|
|
|
(2,453
|
)
|
|
|
(107,171
|
)
|
|
|
(75,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,411
|
)
|
|
|
(116,322
|
)
|
|
|
(94,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (payments) borrowings under revolving
lines-of-credit
|
|
|
|
|
|
|
(29,435
|
)
|
|
|
19,950
|
|
Proceeds from other borrowings
|
|
|
612
|
|
|
|
125,268
|
|
|
|
57,761
|
|
Principal payments on other borrowings
|
|
|
(50,867
|
)
|
|
|
(7,640
|
)
|
|
|
(8,812
|
)
|
Proceeds from issuance of common stock on exercised warrants and
options
|
|
|
82
|
|
|
|
677
|
|
|
|
859
|
|
Proceeds from other issuance of common stock
|
|
|
24,795
|
|
|
|
28,513
|
|
|
|
33,939
|
|
Excess tax benefit from stock-based compensation
|
|
|
(37
|
)
|
|
|
107
|
|
|
|
57
|
|
Proceeds from issuance of subsidiary stock
|
|
|
|
|
|
|
5,575
|
|
|
|
3,613
|
|
Debt-issuance costs
|
|
|
(1,453
|
)
|
|
|
(5,814
|
)
|
|
|
(2,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(26,868
|
)
|
|
|
117,251
|
|
|
|
104,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(57,995
|
)
|
|
|
59,624
|
|
|
|
1,847
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
62,933
|
|
|
|
3,309
|
|
|
|
1,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
4,938
|
|
|
$
|
62,933
|
|
|
$
|
3,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-7
Metalico,
Inc. and Subsidiaries
($
thousands, except share data)
|
|
Note 1.
|
Nature of
Business and Summary of Significant Accounting
Policies
|
Nature of business: Metalico, Inc. and
subsidiaries (the Company) operates in two distinct
business segments: (a) scrap metal recycling (Scrap
Metal Recycling), and (b) lead metal product
fabricating (Lead Fabricating). The Companys
operating facilities as of December 31, 2009 included
twenty-four scrap metal recycling facilities located in Buffalo,
Rochester, Niagara Falls, Lackawanna, and Syracuse, New York,
Akron, Youngstown and Warren, Ohio, Newark, New Jersey, Buda and
Dallas, Texas, Gulfport, Mississippi, Pittsburgh, Brownsville,
Sharon, West Chester and Quarryville, Pennsylvania, and
Colliers, West Virginia; an aluminum de-ox plant located in
Syracuse, New York; and four lead product manufacturing and
fabricating plants located in Birmingham, Alabama, Healdsburg
and Ontario, California and Granite City, Illinois. The Company
markets a majority of its products on a national basis but
maintains several international customers.
Reference should be made to Note 19 regarding discontinued
operations of the Company.
A summary of the Companys significant accounting policies
follows:
Use of estimates in the preparation of financial
statements: The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and
their reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Principles of consolidation: The accompanying
financial statements include the accounts of Metalico, Inc. and
its consolidated subsidiaries, which are comprised of those
entities in which it has an investment of 50% or more, or a
controlling financial interest. A controlling financial interest
is presumed to exist when the Company holds an interest of 50%
or less in an entity, but possesses (i) control over more
than 50% of the voting rights by virtue of indirect ownership by
certain officers and shareholders of the Company, (ii) the
power to govern the entitys financial and operating
policies by agreement or statute or ability to appoint
management, (iii) the right to appoint or remove the
majority of the board of directors, or (iv) the power to
assemble the majority of voting rights at meetings of the board
of directors or other governing body. All significant
intercompany accounts and transactions have been eliminated.
Cash and cash equivalents: For the purpose of
reporting cash flows, the Company considers all highly liquid
debt instruments purchased with original maturities of three
months or less to be cash equivalents.
Trade receivables: Trade receivables are
carried at original invoice amount less an estimate made for
doubtful receivables based on a review of all outstanding
amounts on a monthly basis. Management determines the allowance
for doubtful accounts by identifying troubled accounts and by
using historical experience applied to an aging of accounts.
Trade receivables are written off when deemed uncollectible.
Recoveries of trade receivables previously written off are
recorded when received. The Company generally does not charge
interest on past-due amounts or require collateral on trade
receivables.
Concentration of credit risk: Financial
instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash,
money market mutual funds and trade receivables. At times, cash
in banks is in excess of the FDIC insurance limit. The Company
has not experienced any loss as a result of those deposits and
does not expect any in the future.
Inventories: Inventories are valued at the
lower of cost or market determined on a
first-in,
first-out basis. A portion of operating labor and overhead costs
has been allocated to inventory.
Property and equipment: Property and equipment
are stated at cost. Depreciation is provided on a straight-line
basis over the estimated service lives of the respective classes
of property and equipment ranging between 3 and
F-8
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
10 years for office furniture, fixtures and equipment, 3
and 10 years for vehicles, 2 and 20 years for
machinery and equipment and 3 and 39 years for buildings
and improvements.
Goodwill: The Company records as goodwill the
excess of the purchase price over the fair value of identifiable
net assets acquired. Accounting Standards Codification (ASC),
prescribes a two-step process for impairment testing of
goodwill, which is performed annually, as well as when an event
triggering impairment may have occurred. The first step tests
for impairment by comparing the estimated fair value of each
reporting unit to its carrying value, while the second step, if
necessary, measures the impairment. The Company has elected to
perform its annual analysis as of December 31 of each fiscal
year.
Other intangible and other assets: Covenants
not to compete are amortized on a straight-line basis over the
terms of the agreements, not exceeding 5 years. Debt issue
costs are amortized over the average term of the credit
agreement using the effective interest method. Supplier lists
are amortized on a straight-line basis not to exceed
20 years, customer lists are amortized on a straight-line
basis not to exceed 10 years, and trademarks and know-how
have an indefinite life.
Impairment of long-lived and intangible
assets: The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted cash flows expected to be generated by the asset.
If such assets are impaired, the impairment is recognized as the
amount by which the carrying amount exceeds the estimated future
discounted cash flows. Assets to be sold are reported at the
lower of the carrying amount or the fair value less costs to
sell.
Equity Method of Accounting: The Company
accounts for its unconsolidated subsidiaries using the equity
method of accounting. Under the equity method, the investment is
carried at cost of acquisition, plus the Companys equity
in undistributed earnings or losses since acquisition. Equity in
the losses of the unconsolidated subsidiary is recognized
according to the Companys percentage ownership in the
unconsolidated subsidiary until the Company contributed capital
has been fully depleted. Reserves are provided where management
determines that the investment or equity in earnings is not
realizable. Changes in equity in undistributed earnings or
losses since acquisition are reflected in other income (loss) in
the statement of operations.
Income taxes: Deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for
deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment. The Company files its income
tax return on a consolidated basis with its respective
subsidiaries. The members of the consolidated group have elected
to allocate income taxes among the members of the group by the
separate return method, under which the parent company credits
the subsidiary for income tax reductions resulting from the
subsidiarys inclusion in the consolidated return, or the
parent company charges the subsidiary for its allocated share of
the consolidated income tax liability. When tax returns are
filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while
others are subject to uncertainty about the merits of the
position taken or the amount of the position that would be
ultimately sustained. The benefit of a tax position is
recognized in the financial statements in the period during
which, based on all available evidence, management believes it
is more likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable
taxing authority. The portion of the benefits associated with
tax positions taken that exceeds the
F-9
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
amount measured as described above is reflected as a liability
for unrecognized tax benefits in the accompanying balance sheets
along with any associated interest and penalties that would be
payable to the taxing authorities upon examination. Interest and
penalties associated with unrecognized tax benefits are
classified as income taxes in the statement of operations.
Revenue recognition: Revenues from product
sales is recognized based on free on board (FOB)
terms which generally is when title transfers and the risks and
rewards of ownership have passed to customers. Brokerage sales
are recognized upon receipt of materials by the customer and
reported net of costs in product sales. Historically, there have
been very few sales returns and adjustments in excess of
reserves for such instances that would impact the ultimate
collection of revenues: therefore, no material provisions have
been made when a sale is recognized.
Sale of Stock by a Subsidiary: The Company
accounts for the sale of stock by a subsidiary of the Company in
accordance with the Securities and Exchange Commissions
Staff Accounting Bulletin (SAB) No. 51,
Accounting for Sales of Stock by a Subsidiary
(SAB 51), which requires that the difference
between the carrying amount of the parents investment in a
subsidiary and the underlying net book value of the subsidiary
after the issuance of stock by the subsidiary be reflected as
either a gain or loss in the statement of operations or
reflected as an equity transaction. The Company has elected to
record gains or losses resulting from the sale of a
subsidiarys stock as equity transactions, net of deferred
taxes.
Derivative financial instruments: All
derivatives are recognized on the balance sheet at their fair
value. On the date the derivative contract is entered into, the
Company designates the derivative as a hedge of a forecasted
transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability. Changes in
the fair value of a derivative that is highly effective
as and that is designated and qualifies as a
cash-flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability of cash flows
(e.g., when periodic settlements on a variable-rate asset or
liability are recorded in earnings).
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management
objective and strategy for undertaking various hedged
transactions. This process includes linking all derivatives that
are designated as cash-flow hedges to specific assets and
liabilities on the balance sheet or forecasted transactions. The
Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. When it is
determined that a derivative is not highly effective as a hedge
or that it has ceased to be a highly effective hedge, the
Company discontinues hedge accounting prospectively, as
discussed below.
The Company discontinues hedge accounting prospectively when
(1) it is determined that the derivative is no longer
effective in offsetting changes in the cash flows of a hedged
item (including forecasted transactions); (2) the
derivative expires or is sold, terminated, or exercised;
(3) the derivative is designated as a hedge instrument,
because it is unlikely that a forecasted transaction will occur;
or (4) management determines that designation of the
derivative as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable
that a forecasted transaction will not occur, the derivative
will continue to be carried on the balance sheet at its fair
value, and gains and losses that were accumulated in other
comprehensive income will be recognized immediately in earnings.
In all other situations in which hedge accounting is
discontinued, the derivative will be carried at its fair value
on the balance sheet, with subsequent changes in its fair value
recognized in current-period earnings.
Stock-based compensation: the Company records
compensation expense for stock based compensation in accordance
with ASC Topic No. 718. For employee stock options, the
Company calculates the fair value of the award on the date of
grant using the Black-Scholes method and recognizes that expense
over the service period for awards expected to vest. The fair
value of restricted stock awards is determined based on the
number of shares granted and the quoted price of the
Companys common stock on each quarterly vesting date. The
estimation of
F-10
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
stock awards that will ultimately vest requires judgment, and to
the extent actual results or updated estimates differ from
original estimates, such amounts are recorded as a cumulative
adjustment in the period estimates are revised. The Company
considers many factors when estimating expected forfeitures,
including types of awards, employee class, and historical
experience.
Environmental remediation costs: The Company
is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will
incur additional capital and operating costs in the future to
comply with currently existing laws and regulations, new
regulatory requirements arising from recently enacted statutes,
and possible new statutory enactments. The Company accrues
losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable. Accruals
for estimated losses from environmental remediation obligations
generally are recorded no later than completion of the remedial
feasibility study. Such accruals are adjusted as further
information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries of environmental
remediation costs from other parties are recorded as assets when
their receipt is deemed probable.
Determining (a) the extent of remedial actions that are or
may be required, (b) the type of remedial actions to be
used, (c) the allocation of costs among potentially
responsible parties (PRPs) and (d) the costs of
making such determinations, on a
site-by-site
basis, require a number of judgments and assumptions and are
inherently difficult to estimate. The Company utilizes certain
experienced consultants responsible for site monitoring, third
party environmental specialists, and correspondence and progress
reports obtained from the various regulatory agencies
responsible for site monitoring to estimate its accrued
environmental remediation costs. The Company generally contracts
with third parties to fulfill most of its obligations for
remedial actions. The time period necessary to remediate a
particular site may extend several years, and the laws governing
the remediation process and the technology available to complete
the remedial action may change before the remedial action is
complete. Additionally, the impact of inflation and productivity
improvements can change the estimates of costs to be incurred.
It is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies,
the nonexistence or inability of other PRPs to contribute to the
settlements of such liabilities or other factors could
necessitate the recording of additional liabilities which could
be material. The majority of the Companys environmental
remediation accrued liabilities are applicable to its secondary
lead smelting operations classified as discontinued operations.
Earnings per common share: Basic earnings per
share (EPS) data has been computed on the basis of
the weighted-average number of common shares outstanding during
each period presented. Diluted EPS data has been computed on the
basis of the assumed conversion, exercise or issuance of all
potential common stock instruments, unless the effect is to
reduce the loss or increase the net income per common share.
|
|
Note 2.
|
Business
Acquisitions
|
Business acquisition (scrap metal recycling
segment): On December 8, 2009, the
Companys Metalico Youngstown, Inc., subsidiary
(Youngstown) closed a purchase of substantially all
the assets, of Youngstown Iron & Metal, Inc.
(YIM) and Atlas Recycling, Inc., (ARI)
value added processors of recyclable scrap metal feedstocks of
ferrous and non-ferrous metals located principally in
Youngstown, Ohio. In connection with the acquisition, the
Company entered into a short term lease for the real property
used in the operations which it expects to purchase in 2010. No
goodwill was recorded in the transaction. Included in the
allocation of the purchase price is a gain of $866 and is
reported as a separate item in income from operations. The $866
gain represents a supplier list valued at $850 which will be
amortized on a straight line basis over a 10 year life and
$16 representing the fair market value of net assets purchased
in excess of the purchase price. Unaudited pro forma results are
not presented as they are not material to the Companys
overall consolidated financial statements.
Business acquisition (scrap metal recycling
segment): On May 1, 2008, the Companys
Metalico Pittsburgh, Inc. (formerly known as Metalico Neville,
Inc.), Metalico Neville Realty, Inc. and Metalico Colliers
Realty, Inc.
F-11
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
subsidiaries (collectively Pittsburgh) closed a
purchase of substantially all the assets, including real
property, of the Snyder Group, a family-owned multi-yard fully
integrated scrap metal recycling operation in Western
Pennsylvania and West Virginia. The results of operations
acquired are included in the Companys scrap metal
recycling segment in the consolidated financial statements from
the acquisition date forward. The aggregate purchase price was
$77,482, plus a payment for working capital in excess of a
predetermined amount and closing costs totaling $4,621, for an
aggregate purchase price of $82,103 comprised of cash of
$73,796, and 622,222 shares of Metalico common stock
totaling $8,307, representing fair market value at the date of
the acquisition. On November 13, 2008 and April 1,
2009, an additional 311,111 and 159,393 shares,
respectively, of Metalico common stock were issued to the
sellers, as adjustments following a decline in the
Companys stock price. The $544 and $288 respective values
of these additional stock issuances were recognized as an
expense in the financial instruments fair value adjustment. The
acquisition was financed with a portion of the proceeds from the
private placement of $100,000 in 7% convertible notes issued on
May 1, 2008 as further described in Note 10 below. The
Company has completed its valuation of certain intangible assets
acquired in the transaction and has recorded a purchase price
allocation based upon managements assessment of the
tangible and intangible asset values as of the acquisition date.
The purchase price allocation is as follows:
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
694
|
|
Inventory
|
|
|
10,790
|
|
Other current assets
|
|
|
44
|
|
Property and equipment
|
|
|
29,465
|
|
Covenants
not-to-compete
|
|
|
1,400
|
|
Other Intangibles
|
|
|
23,700
|
|
Goodwill
|
|
|
16,010
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
82,103
|
|
|
|
|
|
|
The $16,010 of goodwill, deductible for income tax purposes,
represents the excess of cost over the fair value of net
tangible and finite-lived intangible assets acquired. Other
intangibles acquired in the transaction include $19,400 for
supplier relationships which will be amortized on a
straight-line basis over a
20-year
life, $1,400 for non-compete covenants which will be amortized
on a straight-line basis over a 30 month period and $4,300
for trademarks and trade names which have an indefinite life.
Refer to Note 7 Goodwill and Note 8 Other Intangible
Assets for impairment of intangible assets acquired in the
Pittsburgh transaction.
Unaudited pro forma financial information presented below for
the years ended December 31, 2008 and 2007 gives effect to
the acquisition of Pittsburgh as if it occurred as of
January 1, 2007. The pro forma financial information is
presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if
the acquisition of Pittsburgh had taken place at the beginning
of each of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
873,816
|
|
|
$
|
451,233
|
|
Net (Loss) Income
|
|
$
|
(35,138
|
)
|
|
$
|
23,679
|
|
(Loss) Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.99
|
)
|
|
$
|
0.80
|
|
Diluted
|
|
$
|
(0.99
|
)
|
|
$
|
0.75
|
|
Business acquisition (scrap metal recycling
segment): On January 25, 2008, the
Companys Metalico Catcon, Inc. subsidiary, now known as
American Catcon, Inc. (American Catcon), closed a
purchase of substantially all of the operating assets of
American Catcon Holdings, LLC (ACC Texas) and
American Cat
F-12
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Con, LLC (ACC Mississippi; collectively with ACC
Texas, ACC). The results of operations acquired are
included in the consolidated financial statements from the
acquisition date forward. The acquisition expanded the
Companys platform and presence in the recycling of
Platinum Group Metals contained in catalytic converters. The
aggregate purchase price, including a payment for inventory in
excess of a predetermined amount, was approximately $33,161
comprised of cash in the amount of $25,301, a $3,860 note
payable to the seller and 500,000 shares of Metalico
redeemable common stock totaling $4,000, representing fair
market value at the date of the acquisition. American Catcon
will also make an annual earnout payment to ACC Texas for the
years 2008, 2009, 2010, and 2011 if the acquired assets perform
over predetermined income levels during such periods. If such
payments are made, they will increase the total purchase price
and be recorded as an increase to goodwill. For the year ending
December 31, 2009 and 2008, the earnout is $0. The
acquisition was financed with a $17,150 term loan, a $3,860 note
payable to the seller in 24 monthly installments with
interest at 7%, with the balance of the purchase price paid with
borrowings under the Companys existing credit facility. In
connection with the acquisition, the Company entered into a
5-year lease
for the facilities located in Buda, Texas. The lease requires
monthly rent of approximately $30 per month or $1,800 over the
five year term. The operating results of ACC are included in the
Companys scrap metal recycling segment from the date of
acquisition.
On May 15, 2008, American Catcon acquired the real property
in Gulfport, Mississippi used in its operations for $255. The
purchase price was paid with borrowings under the Companys
existing credit facility.
The Company has completed its valuation of certain intangible
assets acquired in the transaction and has recorded a purchase
price allocation based upon managements assessment of the
tangible and intangible asset values as of the acquisition date.
The purchase price allocation is as follows:
|
|
|
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
6
|
|
Accounts receivable
|
|
|
4,120
|
|
Inventory
|
|
|
3,715
|
|
Other current assets
|
|
|
4,260
|
|
Property and equipment
|
|
|
782
|
|
Covenants
not-to-compete
|
|
|
740
|
|
Other Intangibles
|
|
|
8,790
|
|
Goodwill
|
|
|
10,920
|
|
Liabilities Assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
(18
|
)
|
Short-term debt and notes payable
|
|
|
(154
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
33,161
|
|
|
|
|
|
|
The $10,920 of goodwill, deductible for income tax purposes,
represents the excess of cost over the fair value of net
tangible and finite-lived intangible assets acquired. Other
intangibles acquired in the transaction include $3,420 for
supplier relationships which will be amortized on a
straight-line basis over a
10-year
life; $1,550 for customer relationships which will be amortized
on a straight-line basis over a
10-year
life; $10 for a product database which will be amortized on a
straight-line basis over a
3-year life;
$740 for non-compete covenants which will be amortized on a
straight-line basis over a 5 year period and $3,810 for
trademarks and trade names which have an indefinite life. Refer
to Note 7 Goodwill and Note 8 Other Intangible Assets
for impairment of intangible assets acquired in the ACC
transaction.
Unaudited pro forma financial information presented below for
the years ended December 31, 2008 and 2007 gives effect to
the acquisition of ACC as if it occurred as of January 1,
2007. The pro forma financial information is
F-13
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if
the acquisition of ACC had taken place at the beginning of each
of the periods presented.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
832,428
|
|
|
$
|
456,457
|
|
Net (Loss) Income
|
|
$
|
(43,066
|
)
|
|
$
|
19,410
|
|
(Loss) Earnings Per Share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.22
|
)
|
|
$
|
0.66
|
|
Diluted
|
|
$
|
(1.22
|
)
|
|
$
|
0.65
|
|
Business acquisition (scrap metal recycling
segment): On July 10, 2007, the Company
acquired 82.5% of the outstanding capital stock of Totalcat
Group, Inc. (Totalcat), a recycler and manufacturer
of catalytic devices headquartered in Newark, New Jersey. Both
Metalico, Inc. (Metalico) and the selling
stockholders of Totalcat have rights to require the sale of the
remaining Totalcat stock to Metalico after the second
anniversary of the acquisition at a price determined in
accordance with a formula set forth in the governing stock
purchase agreement. The Company had recorded an initial
liability of $5,734 on the acquisition date representing the net
present value of the minimum anticipated purchase price of
$6,750 for the remaining 17.5% it did not acquire at the
acquisition date. On July 10, 2009, the Company acquired
the remaining 17.5% it did not own for $6,750. The results of
operations acquired have been included in the accompanying
consolidated financial statements since that date. The aggregate
purchase price for the capital stock acquisition was
approximately $30,000, plus a $1,488 payment for net working
capital in excess of a predetermined amount. The Company also
entered into a $1,500 non-compete agreement with one of the
previous owners. The acquisition was financed with an $18,000
term loan with the $13,488 balance of the purchase price paid
with borrowings from the Companys existing credit
facility. The Company has completed its valuation of certain
intangible assets acquired in the transaction and has recorded a
purchase price allocation based upon managements
assessment of the tangible and intangible asset values as of the
acquisition date. The purchase price allocation resulted in
$27,092 of goodwill, not deductible for income tax purposes,
representing the excess of cost over the fair value of net
tangible and finite lived intangible assets acquired. Other
amortizable intangible assets acquired in the transaction
include $3,940 for supplier relationships which are being
amortized on a straight-line basis over a
13-year
period; $480 for customer relationships which are being
amortized on a straight-line basis over a
13-year
period; $230 of value in excess of the price paid for a
non-compete covenant amortizable on a straight-line basis over a
4 year period commencing with the termination of the
employment of one of the previous owners; $9,290 for trademarks
and trade names which have an indefinite life and $9 for patents
which will be amortized over the statutory life. Refer to
Note 7 Goodwill and Note 8 Other Intangible Assets for
impairment of intangible assets acquired in the Totalcat
transaction.
Unaudited pro forma financial information presented below for
the year ended December 31, 2007 gives effect to the
acquisition of Totalcat as if it occurred as of January 1,
2007. The pro forma financial information is presented for
informational purposes only and is not indicative of the results
of operations that would have been achieved if the acquisition
of Totalcat had taken place at the beginning of each of the
periods presented.
|
|
|
|
|
|
|
2007
|
|
Revenues
|
|
$
|
354,757
|
|
Net Income
|
|
$
|
13,170
|
|
Earnings Per Share
|
|
|
|
|
Basic
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.45
|
|
Business acquisition (scrap metal recycling
segment): On July 3, 2007, the
Companys Metalico Akron, Inc. (Metalico Akron)
and Metalico Akron Realty, Inc. (Realty)
subsidiaries acquired substantially all of the
F-14
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
operating assets of Annaco, Inc. (Annaco) and
interests in the real property used by Annaco in its business.
The results of operations acquired have been included in the
consolidated financial statements since that date. The aggregate
purchase price was approximately $33,510, including a payment
for inventory in excess of a predetermined amount that was
subject to post-closing adjustment and an allocation for the
real estate interests. The Company will also make an annual
earnout payment to Annaco for the fiscal years 2007, 2008, and
2009 (the payment for 2007 being prorated) if the acquired
assets perform over a predetermined income level during such
periods. If such payments are made, it will increase the total
purchase price and be recorded as an increase to goodwill. For
the years ending December 31, 2008 and 2007, the earnouts
amounted to $5,250 and $0. The acquisition was financed with a
$32,000 term loan with the balance of the purchase price paid
with borrowings under the Companys existing credit
facility. The Company has completed its valuation of certain
intangible assets acquired in the transaction and has recorded a
purchase price allocation based upon managements
assessment of the tangible and intangible asset values as of the
acquisition date.
Unaudited pro forma financial information presented below for
the year ended December 31, 2007 gives effect to the
acquisition of Annaco as if it occurred as of January 1,
2007. The pro forma financial information is presented for
informational purposes only and is not indicative of the results
of operations that would have been achieved if the acquisition
of Annaco had taken place at the beginning of each of the
periods presented.
|
|
|
|
|
|
|
2007
|
|
Revenues
|
|
$
|
365,188
|
|
Net Income
|
|
$
|
15,262
|
|
Earnings Per Share
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.52
|
|
Business acquisition (scrap metal recycling
segment): On May 31, 2007, the Company
acquired 100% of the outstanding capital stock of Tranzact, Inc.
(Tranzact), a recycler of molybdenum, tantalum and
tungsten scrap metals located in Quarryville, Pennsylvania. This
acquisition represents a strategic expansion into these
specialized metals markets. The results of operations acquired
have been included in the Companys Scrap Metal Recycling
segment in the consolidated financial statements since that
date. The aggregate purchase price was approximately $10,162
including cash in the amount of $9,538 and a note payable to the
seller of $624. The cash portion of the acquisition was financed
by debt from borrowings under the Companys loan agreement
with its primary lender. The Company has completed its valuation
of certain intangible assets acquired in the transaction and has
recorded a purchase price allocation based upon
managements assessment of the tangible and intangible
asset values as of the acquisition date.
Unaudited pro forma financial information results of operations
for the year ended December 31, 2007 presented below gives
effect to the acquisition of Tranzact as if it occurred as of
January 1, 2007. The pro forma financial information is
presented for informational purposes only and is not indicative
of the results of operations that would have been achieved if
the acquisition of Tranzact had taken place at the beginning of
the periods presented.
|
|
|
|
|
|
|
2007
|
|
Revenues
|
|
$
|
346,624
|
|
Net Income
|
|
$
|
15,357
|
|
Earnings Per Share
|
|
|
|
|
Basic
|
|
$
|
0.53
|
|
Diluted
|
|
$
|
0.52
|
|
Business acquisition (scrap metal recycling
segment): On April 30, 2007, through its
Metalico Transfer, Inc., subsidiary, the Company acquired
substantially all of the assets of Compass Environmental
Haulers, Inc.
F-15
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
(Compass), a construction and demolition debris
transfer station in Rochester, New York. The acquisition
expanded the Companys scrap recycling hauling operations
and entered the Company into the construction and demolition
transfer business. Another wholly owned subsidiary, Metalico
Transfer Realty, Inc., acquired the real property used in
Compass operations from an affiliate of Compass. The
results of operations acquired have been included in the
Companys Scrap Metal Recycling segment in the consolidated
financial statements since that date. The aggregate purchase
price (including the cost of the real property) was
approximately $2,694 including cash in the amount of $1,640,
notes payable of $934 and a non-compete agreement of $120. The
cash portion of the acquisition was financed by debt from
borrowings under the Companys loan agreement with its
primary lender. Unaudited pro forma results are not presented as
they are not material to the Companys overall consolidated
financial statements.
Revenues for the years ended December 31, 2009, 2008 and
2007, includes revenue from net sales to the following customer
(which accounted for 10% or more of the total revenue of the
Company in any of those periods), together with the trade
receivables due from such customer as of and December 31,
2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues to Customer as a Percentage
|
|
Trade Receivable
|
|
|
of Total Revenues
|
|
Balance as of
|
|
|
For The Year Ended December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009
|
|
2008
|
|
Customer A (Scrap metal reporting segment)
|
|
|
18.0
|
%
|
|
|
30.0
|
%
|
|
|
8.4
|
%
|
|
$
|
5,123
|
|
|
$
|
347
|
|
Inventories as of December 31, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw materials
|
|
$
|
4,403
|
|
|
$
|
5,240
|
|
Finished goods
|
|
|
6,935
|
|
|
|
7,909
|
|
Work-in-process
|
|
|
1,894
|
|
|
|
534
|
|
Ferrous scrap metal
|
|
|
15,655
|
|
|
|
8,241
|
|
Non-ferrous scrap metal
|
|
|
23,727
|
|
|
|
9,848
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,614
|
|
|
$
|
31,772
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5.
|
Investment
in Beacon Energy Holdings Inc.
|
As of December 31, 2009 and 2008, the Company held a 33.1%
and 36.6% interest respectively in Beacon Energy Holdings, Inc.
(Beacon) a company organized to produce and market
biofuels refined from waste vegetable oil, fats, and
agricultural feedstocks. Beacon currently trades on the OTC
Bulletin Board. As of December 31, 2009, the Company
had invested $5,000 in Beacon. The operations of Beacon prior to
June 30, 2008 were consolidated into the operating results
of the Company with an elimination of the noncontrolling
interests share. Subsequent to June 30, 2008, the
investment has been accounted for as an equity method investment
due to a reduction in the Companys ownership percentage
resulting from additional investments made by unrelated
investors into Beacon on that date. As of December 31,
2009, Carlos E. Agüero, Chairman, President and Chief
Executive Officer of the Company, holds approximately 9.9% of
the stock of Beacon and serves as the chairman of its board of
directors. At December 31, 2009, the Company determined the
carrying value of its investment in Beacon was not recoverable
due to expiration of federal renewable energy tax credits, low
product demand, rising
F-16
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
feedstock costs and diminished working capital balances at year
end. For the year ended December 31, 2009 the Company
reported a loss from unconsolidated subsidiaries totaling $3,839
comprised of its respective share in the equity of Beacons
net loss for the year ended December 31, 2009 of $1,235 and
the write down of carrying value of $2,604. For the period July
1 through December 31, 2008, the Companys respective
share in the equity of Beacons net loss was $3,419. These
losses are reflected in other income (expense).
The carrying amount of the investment in Beacon as of
December 31, 2009 and 2008 is $0 and$3,609.
|
|
Note 6.
|
Property
and Equipment
|
Property and equipment as of December 31, 2009 and 2008
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
8,837
|
|
|
$
|
8,837
|
|
Buildings and improvements
|
|
|
25,217
|
|
|
|
24,800
|
|
Office furniture, fixtures and equipment
|
|
|
1,654
|
|
|
|
1,534
|
|
Vehicles and machinery and equipment
|
|
|
74,189
|
|
|
|
70,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,897
|
|
|
|
105,822
|
|
Less accumulated depreciation
|
|
|
34,644
|
|
|
|
25,739
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
75,253
|
|
|
$
|
80,083
|
|
|
|
|
|
|
|
|
|
|
The Companys goodwill resides in multiple reporting units.
The carrying amount of goodwill is tested annually as of
December 31 or whenever events or circumstances indicate that
impairment may have occurred. At December 31, 2009, the
Companys market capitalization exceeded total
shareholders equity by approximately $78,200. Significant
improvements in economic conditions in industries in which the
Company purchases and sells material has resulted in improved
operating results in its operating units. No indicators of
impairment were identified for the year ended December 31, 2009.
The carrying amount of goodwill was reduced by $150 in the year
ending December 31, 2009 due to a corresponding reduction
in liabilities under earnout agreements.
For the year ending December 31, 2008, the profitability of
individual reporting units suffered from downturns in customer
demand and other factors resulting from the global economic
crisis including the precipitous decline in commodity prices.
Certain individual reporting units were more impacted by these
factors than the Company as a whole due to particular demand
characteristics for specific commodities which the Company
handles. Specifically, the decline in the automotive industry,
which drives a significant portion of the demand for Platinum
Group Metals (PGM), resulted in exceptional declines in PGM
pricing which impacted the fair value of the goodwill recorded
in the Companys PGM reporting units.
Additionally, the Companys market capitalization was
significantly impacted by extreme volatility in the
U.S. equity and credit markets and as of December 31,
2008, was below its net book value. In its annual test for
impairment, the Company identified instances where the recovery
of the goodwill and other intangible assets recorded in the
acquisition of certain reporting units was doubtful. Upon
analysis the Company had determined that the implied fair value
of its recorded goodwill exceeded its carrying value. As such,
the Company recorded a goodwill impairment charge of $36,260 for
the year ended December 31, 2008.
Further adverse changes in general economic and market
conditions and future volatility in the equity and credit
markets could have further impact on the Companys
valuation of its reporting units and may require the Company to
assess the carrying value of its remaining goodwill and other
intangibles prior to normal annual testing date.
F-17
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Changes in the carrying amount of goodwill for the years ended
December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning
|
|
$
|
69,451
|
|
|
$
|
78,565
|
|
Acquired during the year
|
|
|
|
|
|
|
26,930
|
|
Adjustment for earnouts
|
|
|
(150
|
)
|
|
|
5,250
|
|
Resolution of purchase allocation for 2007 acquisition
|
|
|
|
|
|
|
(7,674
|
)
|
Other costs for 2007 and 2008 acquisitions recorded as goodwill
|
|
|
|
|
|
|
2,640
|
|
Impairment charges
|
|
|
|
|
|
|
(36,260
|
)
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
69,301
|
|
|
$
|
69,451
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
|
Other
Intangible Assets
|
The Company tests all finite-lived intangible assets and other
long-lived assets, such as fixed assets, for impairment only if
circumstances indicate that possible impairment exists.
Estimated useful lives of intangible assets are determined by
reference to both contractual arrangements such as non-compete
covenants and current and projected cash flows for supplier and
customer lists. At December 31, 2009, no indicators of
impairment were identified and no adjustments were made to the
estimated lives of finite-lived assets.
At December 31, 2008, significant adverse changes in the
global economic environment, as well as the business climate for
commodities in which the Company deals, changes to the
Companys operating results and forecasts, and a
significant reduction in the Companys market
capitalization, the carrying value of certain items of the
Companys other long-lived assets exceeded their respective
fair value as of that date. As such, the Company recorded an
impairment charge of $22,783 for the year ended
December 31, 2008. Other intangible assets as of
December 31, 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Impairment
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Charges
|
|
|
Amount
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
not-to-compete
|
|
$
|
4,310
|
|
|
$
|
(2,540
|
)
|
|
$
|
|
|
|
$
|
1,770
|
|
Trademarks and tradenames
|
|
|
6,075
|
|
|
|
|
|
|
|
|
|
|
|
6,075
|
|
Customer relationships
|
|
|
1,055
|
|
|
|
(1,055
|
)
|
|
|
|
|
|
|
|
|
Supplier relationships
|
|
|
37,500
|
|
|
|
(4,203
|
)
|
|
|
|
|
|
|
33,297
|
|
Know how
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
Patents and databases
|
|
|
94
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,431
|
|
|
$
|
(7,829
|
)
|
|
$
|
|
|
|
$
|
41,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
not-to-compete
|
|
$
|
6,731
|
|
|
$
|
(2,194
|
)
|
|
$
|
(2,129
|
)
|
|
$
|
2,408
|
|
Trademarks and tradenames
|
|
|
18,275
|
|
|
|
|
|
|
|
(12,200
|
)
|
|
|
6,075
|
|
Customer relationships
|
|
|
2,605
|
|
|
|
(986
|
)
|
|
|
(1,408
|
)
|
|
|
211
|
|
Supplier relationships
|
|
|
44,440
|
|
|
|
(2,990
|
)
|
|
|
(7,031
|
)
|
|
|
34,419
|
|
Know how
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
397
|
|
Patents and databases
|
|
|
113
|
|
|
|
(4
|
)
|
|
|
(15
|
)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
72,561
|
|
|
$
|
(6,174
|
)
|
|
$
|
(22,783
|
)
|
|
$
|
43,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
The changes in the net carrying amount of amortized intangible
and other assets by classifications for the years ended
December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
|
|
|
|
|
|
|
|
|
|
|
|
|
Not-to-
|
|
|
Customer
|
|
|
Supplier
|
|
|
Patents and
|
|
|
|
Compete
|
|
|
Relationships
|
|
|
Relationships
|
|
|
Databases
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
|
$
|
2,408
|
|
|
$
|
211
|
|
|
$
|
34,419
|
|
|
$
|
94
|
|
Acquisitions/additions
|
|
|
49
|
|
|
|
|
|
|
|
900
|
|
|
|
|
|
Amortization
|
|
|
(687
|
)
|
|
|
(211
|
)
|
|
|
(2,022
|
)
|
|
|
(31
|
)
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
1,770
|
|
|
$
|
|
|
|
$
|
33,297
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning
|
|
$
|
3,002
|
|
|
$
|
422
|
|
|
$
|
17,735
|
|
|
$
|
|
|
Acquisitions/additions
|
|
|
2,370
|
|
|
|
1,550
|
|
|
|
26,080
|
|
|
|
113
|
|
Amortization
|
|
|
(835
|
)
|
|
|
(353
|
)
|
|
|
(2,365
|
)
|
|
|
(4
|
)
|
Impairment charges
|
|
|
(2,129
|
)
|
|
|
(1,408
|
)
|
|
|
(7,031
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
2,408
|
|
|
$
|
211
|
|
|
$
|
34,419
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense recognized on all amortizable intangible
assets totaled $2,951, $3,557 and $934 for the years ended
December 31, 2009, 2008 and 2007. Estimated aggregate
amortization expense on amortizable intangible and other assets
for each of the next five years and thereafter is as
follows:
|
|
|
|
|
Years Ending December 31:
|
|
Amount
|
|
|
2010
|
|
$
|
2,858
|
|
2011
|
|
|
2,528
|
|
2012
|
|
|
2,464
|
|
2013
|
|
|
2,405
|
|
2014
|
|
|
2,367
|
|
Thereafter
|
|
|
22,508
|
|
|
|
|
|
|
|
|
$
|
35,130
|
|
|
|
|
|
|
F-19
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 9.
|
Accrued
Expenses and Other Liabilities
|
Accrued expenses and other liabilities as of December 31,
2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Current
|
|
|
Long-Term
|
|
|
Total
|
|
|
Current
|
|
|
Long-Term
|
|
|
Total
|
|
|
Environmental remediation costs
|
|
$
|
662
|
|
|
$
|
1,350
|
|
|
$
|
2,012
|
|
|
$
|
115
|
|
|
$
|
1,518
|
|
|
$
|
1,633
|
|
Payroll and employee benefits
|
|
|
2,232
|
|
|
|
|
|
|
|
2,232
|
|
|
|
3,572
|
|
|
|
|
|
|
|
3,572
|
|
Interest, bank fees and interest rate swap
|
|
|
1,401
|
|
|
|
880
|
|
|
|
2,281
|
|
|
|
1,887
|
|
|
|
1,028
|
|
|
|
2,915
|
|
Obligations under purchase commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
|
|
|
|
1,973
|
|
Obligations under put options (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,481
|
|
|
|
|
|
|
|
6,481
|
|
Obligations under make-whole agreements (see Note 13)
|
|
|
1,204
|
|
|
|
|
|
|
|
1,204
|
|
|
|
3,546
|
|
|
|
|
|
|
|
3,546
|
|
Obligations under earnout agreements (see Note 2)
|
|
|
133
|
|
|
|
|
|
|
|
133
|
|
|
|
5,250
|
|
|
|
|
|
|
|
5,250
|
|
Put warrant liability
|
|
|
|
|
|
|
3,289
|
|
|
|
3,289
|
|
|
|
|
|
|
|
412
|
|
|
|
412
|
|
Other
|
|
|
1,881
|
|
|
|
|
|
|
|
1,881
|
|
|
|
1,955
|
|
|
|
|
|
|
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,513
|
|
|
$
|
5,519
|
|
|
$
|
13,032
|
|
|
$
|
24,779
|
|
|
$
|
2,958
|
|
|
$
|
27,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
|
Pledged
Assets, Long-Term Debt and Warrants
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-term debt, excluding senior unsecured convertible notes
payable, as of December 31, 2009 and 2008, consisted of the
following:
|
|
|
|
|
|
|
|
|
Senior debt:
|
|
|
|
|
|
|
|
|
Term loans payable under secured credit facility with primary
lender, due in monthly principal installments from $94 to $99
plus interest at the lenders base rate plus a margin (an
effective rate of 4.15% at December 31, 2008), remainder
due May 2013, collateralized by substantially all assets of the
Company.
|
|
$
|
|
|
|
$
|
10,614
|
|
Note payable to bank, due in monthly installments of $3,
including interest at 7.2%, remainder due April 2019,
collateralized by a mortgage on real property
|
|
|
236
|
|
|
|
250
|
|
Other, primarily equipment notes payable and capitalized leases
for related equipment, interest from 0.0% to 15.5%,
collateralized by certain equipment with due dates ranging from
2010 to 2015
|
|
|
3,319
|
|
|
|
4,553
|
|
Term loans payable maturing July 2013. Interest payable monthly
at the lenders minimum base rate plus a margin of 6.5% with a
minimum of 14.0% (an effective rate of 14.0% at
December 31, 2009), The notes are guaranteed by certain of
the Companys subsidiaries and collateralized by
substantially all assets of the Company
|
|
|
30,630
|
|
|
|
67,150
|
|
Subordinated debt (subordinate to debt with primary lenders):
|
|
|
|
|
|
|
|
|
Note payable to corporation in connection with business
acquisition, due in principal installments of approximately $11
every other month plus interest at 5%, unsecured
|
|
|
|
|
|
|
53
|
|
Non-compete obligations payable to individuals in connection
with business acquisitions, due in installments from $11 to $15
from monthly to every other month, unsecured
|
|
|
|
|
|
|
733
|
|
F-20
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Note payable to corporation in connection with business
acquisition, due in monthly installments of approximately $19
including imputed interest at 4.8%, due April 2009,
collateralized by equipment
|
|
|
|
|
|
|
75
|
|
Note payable to corporation in connection with business
acquisition, due in monthly installments of approximately $21
including imputed interest at 4.8%, due April 2009,
collateralized by land and buildings acquired under the terms of
the purchase agreement
|
|
|
|
|
|
|
62
|
|
Note payable to corporation in connection with business
acquisition, due in quarterly principal installments of
approximately $63 plus interest at 7%, due November 2009,
unsecured
|
|
|
|
|
|
|
250
|
|
Note payable to selling shareholders in connection with business
acquisition, due in monthly installments of approximately $20
plus interest at 5%, due December 2019, unsecured
|
|
|
1,842
|
|
|
|
|
|
Note payable to selling shareholder in connection with business
acquisition, due in monthly installments of approximately $41
plus interest at 8%, due May 2010, unsecured
|
|
|
205
|
|
|
|
698
|
|
Note payable to selling shareholder in connection with business
acquisition, due in monthly installments of approximately $17
plus interest at 8%, due May 2010, unsecured
|
|
|
87
|
|
|
|
295
|
|
Note payable to corporation in connection with business
acquisition, due in monthly installments of approximately $161
including interest at 7%, remainder due January 2010, unsecured
|
|
|
100
|
|
|
|
1,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,419
|
|
|
|
86,306
|
|
Less current maturities
|
|
|
8,515
|
|
|
|
30,897
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
27,904
|
|
|
$
|
55,409
|
|
|
|
|
|
|
|
|
|
|
On July 27, 2009, the Company entered into a Tenth
Amendment (the Tenth Amendment) to the Amended and
Restated Loan and Security Agreement, dated as of July 3,
2007 (the Loan Agreement), by and among the Company
and certain of its subsidiaries as borrowers and Wells Fargo
Foothill, Inc., as arranger and administrative agent, and the
lenders party thereto. Among other things, the Tenth Amendment
provided for a reduction in the maximum amount available under
the Loan Agreements revolving credit facility to $30,000,
subject to a borrowing base, with an initial reserve of $20,000.
Interest rates were unchanged. The Tenth Amendment reset the
Companys minimum EBITDA covenant (as defined
in the Loan Agreement), deleted its minimum fixed charge
coverage ratio covenant, established a new maximum leverage
ratio covenant, and permitted certain payments under the
Financing Agreement with Ableco Finance LLC described below. The
remaining material terms of the Loan Agreement remained
unchanged by the Tenth Amendment. No amounts were outstanding
under the Companys revolving line of credit as of
December 31, 2009 and 2008.
On February 27, 2009, the Company entered into a Seventh
Amendment (the Seventh Amendment) to the Loan
Agreement that provided for the prepayment of all outstanding
term loans under the Agreement (in an aggregate amount of
approximately $10,200) and the termination of the term loan
facilities, and a reduction in the maximum amount available
under the Loan Agreements revolving credit facility to
$60,000 from $78,000, subject to a borrowing base. Interest on
revolving loans was adjusted to (i) the Base
Rate (a rate determined by reference to the prime rate)
plus 1.25% (an effective rate of 4.50% as of December 31,
2009) or, at the Companys election, (ii) the
current LIBOR rate plus 3%. The Seventh Amendment also reset
certain covenants, including the Companys minimum
EBITDA, minimum fixed charge coverage ratio, and
maximum capital expenditure
F-21
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
covenants, and permitted the payments under the Financing
Agreement with Ableco Finance LLC described below. Interceding
amendments between the Seventh and Tenth Amendments were not
material.
Listed below are the material debt covenants prescribed by the
Loan Agreement as of December 31, 2009. The Company is in
compliance with each covenant.
Leverage Ratio Leverage Ratio must not exceed
covenant
|
|
|
Covenant
|
|
3.51:1.00
|
Actual
|
|
1.22:1.00
|
Minimum EBITDA Trailing twelve month EBITDA must not
be less than covenant
|
|
|
|
|
Covenant
|
|
$
|
11,622
|
|
Actual
|
|
$
|
27,282
|
|
Year 2009 Capital Expenditures Year 2009 capital
expenditures must not exceed covenant
|
|
|
|
|
Covenant
|
|
$
|
6,325
|
|
Actual
|
|
$
|
3,022
|
|
On July 27, 2009, the Company entered into Amendment
No. 8 (Amendment No. 8) to the Financing
Agreement, dated as of July 3, 2007 (the Financing
Agreement), by and among the Company as borrower, certain
of its subsidiaries as guarantors, and Ableco Finance LLC as
collateral and administrative agent and the lenders party
thereto. Amendment No. 8 provided for a payment of $5,000
on the outstanding term debt under the Financing Agreement at
closing that had previously been due on August 12, 2009,
and permitted additional principal payments from the net
proceeds of (i) federal tax refunds and net operating loss
carrybacks (exclusive of a $2,700 payment already made) and
(ii) offerings of the Companys stock, if any, in an
aggregate amount of at least $12,300. Interest rates were
otherwise unchanged. The Company completed the stock offering on
August 14, 2009, described in Note 12 below, and
repaid a total of $18,820, meeting all of its obligations under
Amendment No. 8. No other principal payments were scheduled
prior to maturity. Amendment No. 8 also reset the
Companys maximum leverage ratio, minimum fixed charge
coverage ratio, minimum EBITDA (as defined in the
Financing Agreement) and minimum Working Assets
(defined to include values for receivables, inventory, and cash
and cash equivalents) covenants and added a monthly minimum
EBITDA requirement. The remaining material terms of the
Financing Agreement remained unchanged by Amendment No. 8.
On February 27, 2009, the Company entered into Amendment
No. 6 (Amendment No. 6) to the Financing
Agreement. Amendment No. 6 provided for three equal
payments of $5,000 on the outstanding term debt under the
Financing Agreement, including one made at closing, one made by
May 13, 2009 and one made by August 12, 2009,
respectively. Interest on the term loans was adjusted to (i)
(A) the greater of 7.5% per annum and the Reference
Rate (a rate determined by reference to the prime rate)
plus (B) 6.5% or (ii) at the Companys election,
(A) the greater of 4.5% per annum and the current LIBOR
rate plus (B) 9.5% (an effective rate of 14.0% as of
December 31, 2009). Amendment No. 6 also reset certain
covenants, including the Companys maximum leverage ratio,
minimum fixed charge coverage ratio, minimum EBITDA,
and maximum capital expenditure covenants, added a covenant
requiring minimum Working Assets and allowed for the
term loan payments under the Loan Agreement described above. An
interceding amendment between Amendment No. 6 and Amendment
No. 8 was not material.
After giving effect to Amendment No. 8 and the Tenth
Amendment to the Loan Agreement described above, as of
December 31, 2009, the Company had outstanding indebtedness
under the Financing Agreement in a principal amount of
approximately $30,630 all in term loans maturing June 30,
2013. Under the Loan Agreement, availability amounted to $13,478
with no amount outstanding at December 31, 2009.
F-22
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Listed below are the material debt covenants as prescribed by
the Financing Agreement as of December 31, 2009. The
Company is in compliance with each covenant.
Leverage Ratio Leverage Ratio must not exceed
covenant
|
|
|
Covenant
|
|
3.51:1.00
|
Actual
|
|
1.22:1.00
|
Fixed Charge Coverage Ratio Fixed Charge Coverage
Ratio must not be less than covenant
|
|
|
Covenant
|
|
0.27:1.00
|
Actual
|
|
1.17:1.00
|
Minimum EBITDA Trailing twelve month EBITDA must not
be less than covenant
|
|
|
|
|
Covenant
|
|
$
|
11,622
|
|
Actual
|
|
$
|
27,282
|
|
Monthly Minimum EBITDA Monthly Minimum EBITDA must
not be less than covenant
|
|
|
|
|
Covenant
|
|
$
|
250
|
|
Actual
|
|
$
|
2,265
|
|
Year 2009 Capital Expenditures Year 2009 capital
expenditures must not exceed covenant
|
|
|
|
|
Covenant
|
|
$
|
6,325
|
|
Actual
|
|
$
|
3,022
|
|
Working Assets Working assets must not be less than
covenant
|
|
|
|
|
Covenant
|
|
$
|
51,776
|
|
Actual
|
|
$
|
88,529
|
|
As a result of the Seventh Amendment and Amendment No. 6,
$23,298 of debt was reclassified as a current liability as of
December 31, 2008. As a result of the Tenth Amendment and
Amendment No. 8, an additional $12,300 in principal was
accelerated as of June 30, 2009. At December 31, 2009,
all accelerated principal has been paid.
The information in the preceding paragraphs refers to the term
EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization). The Company uses EBITDA to determine its
compliance with certain covenants under the Loan Agreement and
Financing Agreement. Prior to July 27, 2009, EBITDA was
defined differently in the Loan Agreement versus the Financing
Agreement, limiting its usefulness as a comparative measure.
EBITDA should not be considered as a measure of discretionary
cash available to the Company to invest in the growth of its
business. EBITDA is not a recognized term under United States
GAAP, and has limitations as an analytical tool. The reader of
these financial statements should not consider it in isolation
or as a substitute for net income, operating income, cash flows
from operating, investing or financing activities or any other
measure calculated in accordance with GAAP.
New
Secured Credit Facility (Unaudited):
On March 2, 2010, the Company entered into a Credit
Agreement (the Credit Agreement) with a syndicate of
lenders led by JPMorgan Chase Bank, N.A. The new three-year
facility consists of senior secured credit facilities in the
aggregate amount of $65,000, including a $57,000 revolving line
of credit (the Revolver) and an $8,000 machinery and
equipment term loan facility. The Revolver provides for
revolving loans which, in the aggregate, are not to exceed the
lesser of $57,000 or a Borrowing Base amount based
on specified percentages of eligible
F-23
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
accounts receivable and inventory and bears interest at the
Base Rate (a rate determined by reference to the
prime rate) plus 1.25% or, at the Companys election, the
current LIBOR rate plus 3.5%. The term loan bears interest at
the Base Rate plus 2% or, at our election, the current LIBOR
rate plus 4.25%. Under the Agreement, the Company will be
subject to certain operating covenants and will be restricted
from, among other things, paying cash dividends, repurchasing
its common stock over certain stated thresholds, and entering
into certain transactions without the prior consent of the
lenders. In addition, the Agreement contains certain financial
covenants, including minimum EBITDA, fixed charge coverage
ratio, and capital expenditure covenants. Obligations under the
Agreement are secured by substantially all of our assets other
than real property. The proceeds of the Agreement are to be used
for present and future acquisitions, working capital, and
general corporate purposes.
Upon the effectiveness of the Credit Agreement described in the
preceding paragraph, the Company terminated the Amended and
Restated Loan and Security Agreement with Wells Fargo Foothill,
Inc. dated July 3, 2007, as amended (the Loan
Agreement) and repaid outstanding indebtedness under the
Loan Agreement in the aggregate principal amount of
approximately $13,478. The Company also terminated the Financing
Agreement with Ableco Finance LLC dated July 3, 2007, as
amended (the Financing Agreement) and repaid
outstanding indebtedness under the Financing Agreement in the
aggregate principal amount of approximately $30,630. Outstanding
balances under the Loan Agreement and the Financing Agreement
were paid with borrowings under the Credit Agreement and
available cash. Unamortized deferred financing costs under the
prior loan agreements amounted to $2,107 and will be expensed in
the first quarter of 2010.
Listed below are the material debt covenants as prescribed by
the Credit Agreement with which the Company will need to be in
compliance.
Annual Capital Expenditures capital expenditures
must not exceed $6,500 per annum.
Minimum EBITDA Minimum EBITDA must not be less than
covenant.
|
|
|
|
|
|
|
Minimum
|
Period Ending:
|
|
EBITDA
|
|
Three months ending March 31, 2010
|
|
$
|
3,237
|
|
Six months ending June 30, 2010
|
|
$
|
9,331
|
|
Fixed Charge Coverage Ratio Commencing
September 30, 2010, Fixed Charge Coverage Ratio must not be
less than 1.10:1.00.
Senior
Unsecured Notes Payable:
On April 23, 2008, the Company entered into a Securities
Purchase Agreement with accredited investors (Note
Purchasers) which provided for the sale of $100,000 of
Senior Unsecured Convertible Notes (the Notes)
convertible into shares of the Companys common stock
(Note Shares). The initial conversion price of the
Notes is $14.00 per share. The Notes bear interest at 7% per
annum, payable in cash, and will mature in April 2028. In
addition, the Notes contain (i) an optional repurchase
right exercisable by the Note Purchasers on the sixth, eighth
and twelfth anniversary of the date of issuance of the Notes,
whereby each Note Purchaser will have the right to require the
Company to redeem the Notes under certain circumstances, and
(ii) an optional redemption right exercisable by the
Company beginning on the third anniversary of the date of
issuance of the Notes and ending on the day immediately prior to
the sixth anniversary of the date of issuance of the Notes,
whereby the Company shall have the option but not the obligation
to redeem the Notes at a redemption price equal to 150% of the
principal amount of the Notes to be redeemed plus any accrued
and unpaid interest thereon, limited to 30% of the aggregate
principal amount of the Notes as of the issuance date, and from
and after the sixth anniversary of the date of issuance of the
Notes, the Company shall have the option to redeem any or all of
the Notes at a redemption price equal to 100% of the principal
amount of the Notes to be redeemed plus any accrued and unpaid
interest thereon. The Notes also contain (i) certain
repurchase requirements upon a change of control, (ii) make
whole provisions upon a change
F-24
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
of control, (iii) weighted average
anti-dilution protection, subject to certain exceptions,
(iv) an interest make whole provision in the event that the
Note Purchasers are forced to convert their Notes between the
third and sixth anniversary of the date of issuance of the Notes
whereby the Note Purchasers would receive the present value
(using a 3.5% discount rate) of the interest they would have
earned should their Notes so converted had been outstanding from
such forced conversion date through the sixth anniversary of the
date of issuance of the Notes, and (v) a debt incurrence
covenant which would limit the ability of the Corporation to
incur debt, under certain circumstances. The transactions
contemplated by the Securities Purchase Agreement closed
May 1, 2008. The Company received stockholder approval for
the right to issue more than 20% of the Companys
outstanding common stock pursuant to the terms of the Notes at
its annual meeting of stockholders on June 24, 2008 in
accordance with certain rules of the American Stock Exchange
(now known as NYSE Amex).
In connection with the convertible note issuance described
above, the Note Purchasers also received a total of 250,000
warrants (Put Warrants) for shares of the
Companys common stock at an exercise price of $14.00 per
share (subject to adjustment) with a term of six years. The
initial fair value of the put warrants was $1,652 which was
recorded as a debt discount and will be amortized over the life
of the convertible notes. In the event of a change of control,
at the request of the holder delivered before the ninetieth
(90th) day after the consummation of such change in control, the
Company (or its successor entity) shall purchase the Put Warrant
from the holder by paying the holder, within five
(5) business days of such request (or, if later, on the
effective date of the change of control, cash in an amount equal
to the Black Scholes Value of the remaining unexercised portion
of the Put Warrant on the date of such change of control.
In connection with the Securities Purchase Agreement, the
Company and the Note Purchasers entered into a Registration
Rights Agreement, dated as of April 23, 2008, pursuant to
which the Company filed a registration statement (the
Registration Statement) on May 23, 2008 to
register the resale of the Note Shares and the shares underlying
the Put Warrants together with the shares issued in the
Companys private placement of equity of April 9, 2008
(the Equity Placement) and the shares underlying the
warrants issued in the Equity Placement. The Registration
Statement was declared effective by the SEC on July 17,
2008.
Convertible
Note Exchanges
On April 23, 2009, the Company entered into five individual
but essentially uniform Exchange Agreements (collectively the
Exchange Agreements) with certain holders of its
senior unsecured 7% Convertible Notes due April 30,
2028 (the Convertible Notes) providing for a
two-tranche exchange of a portion of the outstanding Convertible
Notes for common equity in the Company. In the first tranche,
closed April 24, 2009, the Company exchanged
1,245,354 shares of its common stock (after rounding) for
$5,000 aggregate principal amount of the Convertible Notes
valued at 58% of face amount of Convertible Notes (the
Exchange Rate) based on a per share price of $2.33.
As a result of the consummation of the first tranche of the
exchanges, the Company recognized a $1,727 gain on debt
extinguishment net of unamortized discounts and deferred
financing costs.
In the second tranche, effected on June 4, 2009, the
Company exchanged 2,463,552 shares of its common stock for
principal debt in the aggregate amount of $10,000 with the
participating holders valued at an Exchange Rate of 61% based on
a per share price of $2.48. The terms of the second tranche,
specifically the effective date, the face amount of Convertible
Notes to be exchanged and the Exchange Rate, were modified under
the terms of five individual but essentially uniform amendments
to the Exchange Agreements dated June 4, 2009. As a result
of the consummation of the second tranche of the exchanges, the
Company recognized a $3,227 gain on debt extinguishment, net of
unamortized discounts and deferred financing costs that were
written off as part of the exchange.
The Exchange Agreements also provided for
true-ups
of additional shares to be issued or additional debt retirement
based on the volume-weighted average price of the Companys
common stock during a twenty-five day trading period following
the first tranche and a thirty-five day trading period for the
second tranche. The participating noteholders were also entitled
to certain interim
true-ups
during each trading period if the Companys
F-25
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
stock price declined below certain levels, which did not occur.
As a result of the
true-up for
the first tranche, the Company retired an additional $75 in
principal under the Convertible Notes, resulting in an
additional $70 gain on debt extinguishment, net of unamortized
discounts and deferred financing costs that were written off as
part of the exchange and as a result of the
true-up for
the second tranche, the Company retired an additional $3,315 in
principal under the Convertible Notes, resulting in an
additional $3,048 gain on debt extinguishment, net of fees paid,
unamortized discounts and deferred financing costs that were
written off as part of the exchange. No additional shares of
stock were issued in connection with either tranches final
true-up.
The Company received no cash proceeds as a result of the
exchanges of its common stock for Convertible Notes and all
Convertible Notes surrendered in the exchanges were retired and
cancelled.
The balance of the Convertible Notes is included in the balance
sheet at December 31, 2009 is $80,374 which is inclusive of
unamortized discount of $1,237.
In December 2007, the Company entered into an interest rate swap
agreement related to their borrowings on its revolving
line-of-credit
with Foothill. This swap is utilized to manage interest rate
exposure and is designated as a highly effective cash flow
hedge. The differential to be paid or received on the swap
agreement is accrued as interest rates change and is recognized
over the life of the agreement in interest expense. The swap
agreement expires in January 2011 and has a rate of 4.04% with a
notional amount of $20,000. Included in other comprehensive
income is a loss of approximately $14 ($9 net income taxes)
and $483 ($300 net of income taxes) relating to the change
in fair value of the swap agreement as of December 31, 2009
and 2008 respectively. In September 2008, the interest rate swap
became ineffective when the Company fully repaid the underlying
debt for which the swap was entered. As a result of the
ineffectiveness of the swap, the Company recognized an
additional $282 and $529 in interest expense for the years
ending December 31, 2009 and 2008 respectively. In
connection with the new Credit Agreement entered in to on
March 2, 2010, the Company was required to terminate the
interest rate swap contract. As a result, the Company paid $760
to terminate the contract.
After giving effect to the new credit facility entered into on
March 2, 2010, the aggregate annual maturities required on
long-term debt at December 31, 2009, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Under Previous
|
|
|
Under New
|
|
Years Ending December 31:
|
|
Loan Agreements
|
|
|
Loan Agreements
|
|
|
|
|
|
|
(Unaudited)
|
|
|
2010
|
|
$
|
1,989
|
|
|
$
|
8,515
|
|
2011
|
|
|
1,258
|
|
|
|
3,258
|
|
2012
|
|
|
751
|
|
|
|
2,751
|
|
2013
|
|
|
30,939
|
|
|
|
20,413
|
|
2014
|
|
|
301
|
|
|
|
301
|
|
Thereafter
|
|
|
81,555
|
|
|
|
81,555
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,793
|
|
|
$
|
116,793
|
|
|
|
|
|
|
|
|
|
|
F-26
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 11.
|
Accumulated
Other Comprehensive Loss
|
Total comprehensive income (loss) is reported in the
accompanying statements of stockholders equity.
Information related to the components, net of tax, of other
comprehensive income (loss) for the years ended
December 31, 2009, 2008 and 2007 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Change in funded status of defined benefit pension plan
|
|
$
|
85
|
|
|
$
|
(149
|
)
|
|
$
|
(6
|
)
|
Unrealized loss on interest rate swap
|
|
|
(9
|
)
|
|
|
(300
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76
|
|
|
$
|
(449
|
)
|
|
$
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss, net of
tax, as of December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Funded status of defined benefit pension plan
|
|
$
|
(337
|
)
|
|
$
|
(422
|
)
|
Unrealized loss on interest rate swap
|
|
|
(372
|
)
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(709
|
)
|
|
$
|
(785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Note 12.
|
Capital
and Redeemable Stock
|
On June 24, 2008, shareholders approved an amendment to the
Companys Certificate of Incorporation (a) to
eliminate references to a prior series of preferred stock, all
of which has been converted to common, (b) to permit the
issuance of up to 10,000,000 shares of preferred stock, all
of which is designated as blank check preferred
stock, (c) to increase the total number of authorized
shares of common stock from 50,000,000 shares to
100,000,000 shares, and (d) to restate and integrate
into a single instrument all of the provisions of the
Companys Certificate of Incorporation as so amended.
On August 10, 2009, the Company entered into an
Underwriting Agreement for the sale of a total of
6,000,000 shares of common stock at a price of $4.18 per
share. The common stock was offered and sold pursuant to the
Companys shelf registration on
Form S-3
filed with the Securities and Exchange Commission and resulted
in net proceeds of approximately $24,795 after offering
expenses. The Company used the proceeds to reduce debt and for
general corporate purposes.
Capital stock voting rights, par value, dividend features and
authorized, issued and outstanding shares are summarized as
follows as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
Issued and
|
|
|
|
Issued and
|
|
|
Authorized
|
|
Outstanding
|
|
Authorized
|
|
Outstanding
|
|
New Preferred stock, voting, $.001 par value
|
|
|
10,000,000
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
|
|
Common stock, voting, $.001 par value
|
|
|
100,000,000
|
|
|
|
46,425,224
|
|
|
|
100,000,000
|
|
|
|
36,428,154
|
|
The Board of Directors of Metalico, Inc. is authorized to issue
preferred stock from time to time in one or more classes or
series thereof, each such class or series to have voting powers
(if any), conversion rights (if any), dividend rights, dividend
rate, rights and terms of redemption, designations, preferences
and relative, participating, optional or other special rights
and privileges, and such qualifications, limitations or
restrictions thereof, as shall be determined by the Board and
stated and expressed in a resolution or resolutions of the Board
providing for the issuance of such preferred stock. The Board is
further authorized to increase (but not above the total number
of authorized shares of the class) or decrease (but not below
the number of shares of any such series then outstanding)
F-27
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
the number of shares in any series, the number of which was
fixed by it, subsequent to the issuance of shares of such series
then outstanding, subject to the powers, preferences, and
rights, and the qualifications, limitations, and restrictions of
such preferred stock stated in the resolution of the Board
originally fixing the number of shares of such series
Common stock features include the following:
Authorized shares: On June 24, 2008 the
Companys shareholders approved an increase in the total
number of authorized shares of common stock from
50,000,000 shares to 100,000,000 shares.
Redeemable features: Certain holders of common
shares had put rights, the exercise of which was outside the
Companys control.
The aggregate value of the remaining redemption rights totaled
$4,000 at December 31, 2008, which was reported as
redeemable common stock outside of the stockholders equity
section of the Companys balance sheet. The put rights as
of December 31, 2008, consisted of 500,000 shares
delivered to certain holders as a component of the consideration
for the Companys American Catcon acquisition. The holders
of the redeemable stock had the right to put such shares to the
Company at a minimum price of $8.00 in two equal lots of
250,000 shares, the first within ten trading days of
January 25, 2009 and the second within ten trading days of
January 25, 2010. The Company disputed the terms of the
underlying transaction and declined to honor the put of the
first lot in January 2009. On December 31, 2009, the
Company entered into an agreement with the holders of the shares
of its redeemable common stock. In lieu of receiving the $8.00
per share redemption price from the Company, the holders agreed
to liquidate their shares in the public trading market. The
Company agreed to pay the holder the shortfall, if any, between
the proceeds received by the holders from market sales of the
stock and $8.00 per share included in other expense in the
statement of operations. All 500,000 shares were liquidated
by the holders by February 5, 2010 and the Company recorded
a charge of $1,204 as a result of the shortfall incurred. The
$1,204 liability was recorded as a short-term liability and
reported in accrued expenses as of December 31, 2009.
Changes in redeemable common stock for the years ended
December 31, 2009, 2008 and 2007, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, beginning
|
|
$
|
4,000
|
|
|
$
|
|
|
Issued 500,000 shares of redeemable common stock in
connection with acquisition
|
|
|
|
|
|
|
4,000
|
|
Reclassification of 500,000 shares of redeemable common
stock
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, ending
|
|
$
|
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
Stock
Purchase Warrants:
In conjunction with the issuance of convertible notes to finance
a business acquisition in May 2008, convertible note purchasers
were issued a total of 250,000 warrants for shares of the
Companys common stock at an exercise price of $14.00 per
share (subject to adjustment) with a term of six years. The
Company also issued warrants to purchase 1,169,231 shares
of the Companys common stock at an exercise price of
$12.65 per share (subject to adjustment) with a term of six
years in connection with a private placement of the
Companys common stock in March 2008. Both sets of warrants
provide that, in the event of a change of control, at the
request of the holder delivered before the ninetieth (90th) day
after the consummation of such change in control, the Company
(or its successor entity) shall purchase the warrant from the
requesting holder by paying the holder, within five
(5) business days of such request (or, if later, on the
effective date of the change of control), cash in an amount
equal to the Black
F-28
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Scholes Value of the remaining unexercised portion of the Put
Warrant on the date of such change of control. At
December 31, 2009, all 1,419,231 warrants were outstanding.
|
|
Note 13.
|
Financial
Instruments Liabilities
|
In connection with the $100,000 of Senior Unsecured Convertible
Notes issued on April 23, 2008, the Company issued 250,000
warrants for shares of the Companys common stock at an
exercise price of $14.00 per share (subject to adjustment) with
a term of six years. The Company also issued 1,169,231 warrants
for shares of the Companys common stock at an exercise
price of $12.65 per share with a term of six years in connection
with the issuance of common stock on March 27, 2008
(collectively, Put Warrants). The shares underlying
these put warrants have been registered with the SEC. These
warrants are within the scope of ASC Topic 815,
Derivatives and Hedging (ASC Topic 815),
which requires issuers to classify as liabilities (or assets
under certain circumstances) free-standing financial instruments
which, at inception, require or may require an issuer to settle
an obligation by transferring assets. The Company determines the
fair value of the put warrants using the Black-Scholes method.
The estimated fair value of the warrants issued in connection
with the Convertible Notes was $560 and $69 at December 31,
2009 and 2008 respectively. The warrants are presented as a
long-term liability in the accompanying balance sheets. The
change in the fair market value of the put warrant liability
required the Company to record expense of $491 and income of
$1,583 for the years ended December 31, 2009 and 2008,
respectively.
The estimated fair value of the warrants related to the common
stock offering was $2,729 and $343 at December 31, 2009 and
2008, respectively. The warrants are presented as a long-term
liability in the accompanying balance sheets. The change in the
fair market value of the put warrant liability required the
Company to record expense of $2,386 and income of $5,081 for the
years ended December 31, 2009 and 2008, respectively.
At each balance sheet date, any change in the calculated fair
market value of the warrant obligations must be recorded as
additional expense or other income.
In connection with the Pittsburgh acquisition, the Company
entered into to a make-whole agreement (make-whole
agreement) that provides reimbursement to the seller for
any shortfall in selling price below an agreed upon price, up to
a maximum of $7,000, on the sale of Company stock issued in the
transaction for a period beginning on the six month anniversary
of the transaction. During the year ended December 31,
2009, the Company has made payments totaling $2,415 under the
make-whole agreement. The change in the fair market value
required the Company to record an $843 decrease and $4,721
increase in the value of the make-whole liability for the years
ended December 31, 2009 and 2008, respectively. At
December 31, 2009, all obligations under the Pittsburgh
make-whole agreement were satisfied.
In connection with the settlement reached between the Company
and the sellers of American Catcon, the parties agreed to an
arrangement whereby in lieu of receiving the $8.00 per share
redemption price from the Company, the holders agreed to
liquidate their shares in the public trading market. The Company
agreed to pay the holder the shortfall, if any, between the
proceeds received by the holders from market sales of the stock
and $8.00 per share. At December 31, 2009, the liability
amounted to $1,204 determined by the amount paid out on
February 5, 2010.
F-29
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Net deferred tax assets (liabilities), resulting from the
differences in the timing of the recognition of certain income
and expense items for financial and tax accounting purposes,
consisted of the following components as of December 31,
2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
1,947
|
|
|
$
|
876
|
|
Accrued liabilities
|
|
|
1,909
|
|
|
|
2,620
|
|
Accounts receivable
|
|
|
501
|
|
|
|
752
|
|
Loss carryforwards for state purposes
|
|
|
3,807
|
|
|
|
3,414
|
|
Intangible assets
|
|
|
2,816
|
|
|
|
5,499
|
|
Basis in equity investment
|
|
|
2,229
|
|
|
|
691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,209
|
|
|
|
13,852
|
|
Less valuation allowance
|
|
|
3,795
|
|
|
|
3,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,414
|
|
|
|
10,641
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
6,961
|
|
|
|
4,677
|
|
Gain on debt extinguishment
|
|
|
2,260
|
|
|
|
|
|
Prepaid expenses
|
|
|
160
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,381
|
|
|
|
4,861
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
Included in deferred tax liabilities at December 31, 2009
and 2008 is $361 related to the gain on sale of subsidiary stock
recorded as a capital transaction in the consolidated statement
of stockholders equity.
The deferred tax amounts mentioned above have been classified on
the accompanying balance sheets as of December 31, 2009 and
2008, as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Current assets
|
|
$
|
33
|
|
|
$
|
3,626
|
|
Long-term assets
|
|
|
|
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33
|
|
|
$
|
5,780
|
|
|
|
|
|
|
|
|
|
|
Management has recorded a valuation allowance on a portion of
the net deferred tax assets. Realization of deferred tax assets
is dependent upon sufficient future taxable income during the
period that deductible temporary differences and carryforwards
are expected to be available to reduce taxable income. The
increase in the valuation allowance for 2009 and 2008 is
attributable to loss carryforwards for state purposes related to
non-operating subsidiaries unlikely to produce future taxable
income in order to utilize these loss carryforwards before they
expire. Certain of these valuation reserves were established
upon business acquisitions and, if reversed in the future, will
result in a decrease to goodwill.
Loss carryforwards primarily for state tax purposes as of
December 31, 2009, total approximately $48,325 applicable
to the various states in which the Company files its tax
returns. A valuation allowance has been recorded for
approximately 95% of these loss carryforwards applicable to
non-operating subsidiaries filing as single entities
F-30
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
under applicable federal and state tax laws. The ability of such
non-operating subsidiaries to produce future taxable income in
order to utilize all of the loss carryforwards before they
expire in 2028 is unlikely.
The Company adopted the provisions of ASC Topic 740 Accounting
for Uncertainty in Income Taxes, on January 1, 2007 with no
effect on retained earnings as of January 1, 2007 or on
income tax expense for the years ended December 31, 2009,
2008 and 2007.
For the year ending December 31, 2009, the computed current
tax credit for continuing operations of $3,870 was comprised of
a federal credit of $3,952 and a state provision of $82.
The total provision (credit) for income taxes for the years
ended December 31, 2009, 2008 and 2007, consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(3,870
|
)
|
|
$
|
(1,822
|
)
|
|
$
|
8,535
|
|
Deferred
|
|
|
5,606
|
|
|
|
(13,713
|
)
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,736
|
|
|
$
|
(15,535
|
)
|
|
$
|
8,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(335
|
)
|
|
$
|
(1,492
|
)
|
|
$
|
(108
|
)
|
Deferred
|
|
|
497
|
|
|
|
739
|
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
162
|
|
|
$
|
(753
|
)
|
|
$
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision (credit) attributable to income from
continuing operations differs from the amount of income tax
determined by applying the U.S. federal income tax rate to
pretax income from continuing operations for the years ended
December 31, 2009, 2008 and 2007, due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Computed statutory tax expense (credit)
|
|
$
|
(586
|
)
|
|
$
|
(20,433
|
)
|
|
$
|
8,396
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax effect
|
|
|
(68
|
)
|
|
|
(1,751
|
)
|
|
|
1,205
|
|
Non-deductible items
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
Impairment of non-deductible goodwill and intangible assets
|
|
|
|
|
|
|
6,946
|
|
|
|
|
|
Change in valuation allowance
|
|
|
585
|
|
|
|
673
|
|
|
|
97
|
|
Other, net
|
|
|
145
|
|
|
|
(970
|
)
|
|
|
(1,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,736
|
|
|
$
|
(15,535
|
)
|
|
$
|
8,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total income tax provision (credit) for the years ended
December 31, 2009, 2008 and 2007, was $1,898, ($16,288),
and $8,075, respectively. Those amounts have been allocated to
the following financial statement items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income from continuing operations
|
|
$
|
1,736
|
|
|
$
|
(15,535
|
)
|
|
$
|
8,675
|
|
Discontinued operations
|
|
|
162
|
|
|
|
(753
|
)
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,898
|
|
|
$
|
(16,288
|
)
|
|
$
|
8,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 15.
|
Stock-Based
Compensation Plans
|
The Company established the 2006 Long-Term Incentive Plan (the
2006 Plan) which allows for a number of shares of the
Companys common stock equal to up to 10% of the total
issued and outstanding amount of common shares and common share
equivalents (meaning the number of shares of common stock to
which the Companys outstanding preferred stock could be
converted as of any date of determination) to be issued upon the
exercise of stock based awards granted to officers, consultants,
board members and certain other employees from time to time. The
purpose of the 2006 Plan is to attract and retain qualified
individuals and to align their interests with those of the
stockholders by providing certain employees of the Company and
its affiliates and members of the Board with the opportunity to
receive stock-based and other long-term incentive grants. The
2006 Plan is administered by the Compensation Committee of the
Board of Directors. Awards may be granted in various forms,
including options, warrants, appreciation rights, restricted
stock and common stock and are granted based upon several
factors, including seniority, job duties and responsibilities,
job performance and overall Company performance. Awards vest
over a period as determined by the Compensation Committee. Under
the terms of the 2006 Plan, officers, consultants and other
employees may be granted awards to purchase common stock at
exercise prices set on the date an award is granted and as
determined by the Board of Directors. Awards issued under the
2006 Plan vest ratably over three years and are exercisable for
up to five years from the date of grant. The Company receives no
monetary consideration for the granting of stock based awards
pursuant to the 2006 Plan. However, it receives the option price
for each share issued to grantees upon the exercise of the
options.
The Company established the 1997 Long-Term Incentive Plan (the
1997 Plan) which allows for a number of shares of the
Companys common stock equal to up to 10% of the total
issued and outstanding amount of common shares to be issued upon
the exercise of stock based awards granted to officers,
consultants and certain other employees from time to time. The
primary purpose of the 1997 Plan is to provide additional
performance and retention incentives to officers and other key
employees by facilitating their purchase of an ownership
interest in the Company. The 1997 Plan is administered by the
Compensation Committee of the Board of Directors. Awards may be
granted in various forms, including options, warrants,
appreciation rights, restricted stock and common stock and are
granted based upon several factors, including seniority, job
duties and responsibilities, job performance and overall Company
performance. Awards vest over a period as determined by the
Compensation Committee. Under the terms of the 1997 Plan,
officers, consultants and other employees may be granted awards
to purchase common stock at exercise prices set on the date an
award is granted and as determined by the Board of Directors.
Exercise or purchase price per share amounts are generally
approved at or above the grant date fair value of the
Companys common stock; however, certain awards issued in
2005 and 2004 included terms with exercise prices below the
grant date fair value of the Companys common stock. Awards
issued under the 1997 Plan generally vest ratably over two or
three years and are exercisable for up to five years from the
date of grant. The Company receives no monetary consideration
for the granting of stock based awards pursuant to the 1997
Plan. However, it receives the option price for each share
issued to grantees upon the exercise of the options. With the
approval of the 2006 Plan described in the preceding paragraph,
no further awards were made under the 1997 Plan and all future
awards will be made under the 2006 Plan.
F-32
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
A summary of the status of the fixed awards at December 31,
2009, 2008 and 2007, and changes during the years ended on those
dates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
1,640,009
|
|
|
$
|
8.74
|
|
|
|
1,185,919
|
|
|
$
|
5.03
|
|
|
|
995,905
|
|
|
$
|
3.40
|
|
Granted
|
|
|
679,382
|
|
|
|
3.98
|
|
|
|
678,000
|
|
|
|
13.81
|
|
|
|
453,500
|
|
|
|
7.72
|
|
Exercised
|
|
|
(134,665
|
)
|
|
|
0.61
|
|
|
|
(175,675
|
)
|
|
|
3.86
|
|
|
|
(198,899
|
)
|
|
|
2.74
|
|
Expired
|
|
|
(83,094
|
)
|
|
|
8.28
|
|
|
|
(48,235
|
)
|
|
|
6.68
|
|
|
|
(64,587
|
)
|
|
|
5.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
2,101,632
|
|
|
|
7.74
|
|
|
|
1,640,009
|
|
|
|
8.74
|
|
|
|
1,185,919
|
|
|
|
5.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,105,397
|
(a)
|
|
|
8.03
|
|
|
|
859,146
|
|
|
|
5.72
|
|
|
|
679,701
|
|
|
|
3.66
|
|
Weighted-average fair value per award of awards granted during
the year
|
|
$
|
2.68
|
|
|
|
|
|
|
$
|
6.25
|
|
|
|
|
|
|
$
|
4.05
|
|
|
|
|
|
|
|
|
(a) |
|
As of December 31, 2009, there was $3,482 of total
unrecognized compensation costs related to non-vested
share-based compensation that is expected to be recognized over
a weighted-average period of 1.94 years. |
For the years ended December 31, 2009, 2008, and 2007, the
fair value of each award was estimated at the grant date using
the Black-Scholes method with the following assumptions for
grants: dividend rate of 0%; risk-free interest rates of between
2.19% and 2.64% based on the U.S. Treasury yield curve in
effect at the time of the grant; expected lives of
3-5 years and average volatility rates of 83% to 55% and
55% for 2009 2008 and 2007, respectively based upon the
Companys stock price volatility. Total fair value of
options vested during the year ending December 31, 2009 was
$2,169.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Year Ended December 31
|
|
|
Aggregate Intrinsic Value
|
|
|
2009
|
|
2008
|
|
2007
|
|
Options outstanding:
|
|
$
|
841
|
|
|
$
|
156
|
|
|
$
|
6,855
|
|
Options exercisable:
|
|
$
|
301
|
|
|
$
|
156
|
|
|
$
|
4,858
|
|
Options exercised:
|
|
$
|
308
|
|
|
$
|
1,533
|
|
|
$
|
1,026
|
|
F-33
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
A further summary about awards outstanding at December 31,
2009, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and Warrants
|
|
|
Options and Warrants
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Number
|
|
|
Contractual
|
|
Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Exercisable
|
|
|
Life
|
|
|
$
|
|
|
|
3.03
|
|
|
110,084
|
|
|
|
1.0
|
|
|
|
110,084
|
|
|
|
1.0
|
|
|
|
|
|
3.50
|
|
|
15,583
|
|
|
|
0.0
|
*
|
|
|
15,583
|
|
|
|
0.0
|
*
|
|
|
|
|
3.88
|
|
|
532,667
|
|
|
|
4.6
|
|
|
|
58,852
|
|
|
|
4.6
|
|
|
|
|
|
4.36
|
|
|
10,000
|
|
|
|
1.3
|
|
|
|
10,000
|
|
|
|
1.3
|
|
|
|
|
|
4.58
|
|
|
139,050
|
|
|
|
4.9
|
|
|
|
|
|
|
|
4.9
|
|
|
|
|
|
4.70
|
|
|
1,389
|
|
|
|
1.5
|
|
|
|
1,389
|
|
|
|
1.5
|
|
|
|
|
|
4.86
|
|
|
10,000
|
|
|
|
1.3
|
|
|
|
10,000
|
|
|
|
1.3
|
|
|
|
|
|
4.90
|
|
|
170,000
|
|
|
|
0.0
|
*
|
|
|
170,000
|
|
|
|
0.0
|
*
|
|
|
|
|
5.36
|
|
|
5,000
|
|
|
|
1.3
|
|
|
|
5,000
|
|
|
|
1.3
|
|
|
|
|
|
5.50
|
|
|
105,429
|
|
|
|
1.5
|
|
|
|
105,429
|
|
|
|
1.5
|
|
|
|
|
|
6.29
|
|
|
15,000
|
|
|
|
2.3
|
|
|
|
13,333
|
|
|
|
2.3
|
|
|
|
|
|
7.56
|
|
|
5,000
|
|
|
|
2.7
|
|
|
|
3,750
|
|
|
|
2.7
|
|
|
|
|
|
7.74
|
|
|
344,971
|
|
|
|
2.6
|
|
|
|
277,893
|
|
|
|
2.6
|
|
|
|
|
|
8.48
|
|
|
10,000
|
|
|
|
2.5
|
|
|
|
8,333
|
|
|
|
2.5
|
|
|
|
|
|
9.86
|
|
|
2,153
|
|
|
|
3.0
|
|
|
|
1,435
|
|
|
|
3.0
|
|
|
|
|
|
10.36
|
|
|
4,306
|
|
|
|
3.0
|
|
|
|
2,871
|
|
|
|
3.0
|
|
|
|
|
|
10.40
|
|
|
1,000
|
|
|
|
2.8
|
|
|
|
750
|
|
|
|
2.8
|
|
|
|
|
|
10.41
|
|
|
7,500
|
|
|
|
3.2
|
|
|
|
4,375
|
|
|
|
3.2
|
|
|
|
|
|
14.02
|
|
|
610,000
|
|
|
|
3.5
|
|
|
|
305,000
|
|
|
|
3.5
|
|
|
|
|
|
14.65
|
|
|
2,500
|
|
|
|
3.4
|
|
|
|
1,320
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,101,632
|
|
|
|
3.2
|
|
|
|
1,105,397
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
- Expire as of the close of business December 31, 2009. |
Stock options outstanding that have vested, are expected to vest
and are not expected to vest as of December 31, 2009 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
value(1)
|
|
|
Vested
|
|
|
1,105,397
|
|
|
$
|
8.03
|
|
|
|
2.2
|
|
|
$
|
301,298
|
|
Expected to vest
|
|
|
889,659
|
|
|
$
|
7.43
|
|
|
|
4.2
|
|
|
|
483,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,995,056
|
|
|
$
|
7.76
|
|
|
|
3.1
|
|
|
$
|
784,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not expected to vest
|
|
|
106,576
|
|
|
$
|
7.22
|
|
|
|
4.2
|
|
|
$
|
56,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts represent the difference between the exercise
price and $4.92, the closing price of the Companys common
stock on December 31, 2009 for in the money options. |
F-34
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
During the year ended December 31, 2008, the Company
granted 168,500 shares of restricted common stock to
Company officers and employees at a weighted-average fair value
price of $10.22 per share. The shares will vest quarterly over a
three year period. As of December 31, 2009, a total of
102,980 shares were vested and 49,085 were unvested but
were expected to vest in 2010. A total of 5,895 shares were
forfeited in the year ending December 31, 2009 with a fair
value of $10.76 per share. As of December 31, 2009, there
was $510 of total unrecognized stock-based compensation expense
related to the remaining unvested restricted stock granted in
2008.
At December 31, 2009, the Company has two
defined-contribution 401(k) pension plans, one for employees not
covered by a collective bargaining agreement (Non-union), and
one for employees at its Granite City, Illinois plant covered by
a collective bargaining agreement (Union). The plans offer
substantially all employees a choice to elect to make
contributions pursuant to salary reduction agreements upon
attaining certain age and
length-of-service
requirements. Under the Non-union plan, the Company may make
matching contributions on behalf of the participants of the
plan, not to exceed 100% of the amount of each
participants elective salary deferral, up to a maximum
percentage of a participants compensation as defined by
the plan. Under the Union plan, and in accordance with its labor
contract that covers the Companys union employees at the
Granite City, Illinois plant, Company contributions are required
based on a specified rate per month. On March 18, 2009, the
Company suspended its matching contributions to the Non-union
and 401(k) plan. The Company matched participant contributions
during 2008 and 2007 under the Non-union plan at 100% of a
participants elective salary deferrals, up to a maximum of
4% of a participants compensation. During 2009 and 2008
for the Union plan, the Company matched participant
contributions up to a maximum of 2% of a participant
compensation. The Non-union and Union plans also provide a
profit sharing component where the Company can make a
discretionary contribution to the plans, which is allocated
based on the compensation of eligible employees. No profit
sharing contributions were made for 2009, 2008 and 2007. Company
matching and profit sharing contributions are subject to vesting
schedules, and forfeitures are applied to reduce Company
contributions. Participants are immediately vested in their
elective contributions. 401(k) pension expense for the years
ended December 31, 2009, 2008 and 2007, was approximately
$291, $387 and $355, respectively.
In connection with the Companys acquisition of a
controlling membership interest in Mayco Industries, Inc.
effective September 30, 2004, the Company assumed plan
sponsorship of a frozen defined benefit pension plan at the
Granite City, Illinois plant covering substantially all hourly
employees at such location.
Information relative to this defined benefit pension plan, as of
and for the years ended December 31, 2009 and 2008, is
presented as follows:
The Company uses a December 31 measurement date for the defined
benefit pension plan.
Obligations
and Funded Status
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Changes in benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at beginning of year
|
|
$
|
996
|
|
|
$
|
977
|
|
|
$
|
958
|
|
Service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
58
|
|
|
|
58
|
|
|
|
57
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
Amendments
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Actuarial loss
|
|
|
3
|
|
|
|
30
|
|
|
|
32
|
|
Benefits paid
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations at end of year
|
|
$
|
988
|
|
|
$
|
996
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year
|
|
$
|
467
|
|
|
$
|
684
|
|
|
$
|
660
|
|
Actual return on assets
|
|
|
110
|
|
|
|
(199
|
)
|
|
|
44
|
|
Company contributions
|
|
|
26
|
|
|
|
51
|
|
|
|
50
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(69
|
)
|
|
|
(69
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at end of year
|
|
$
|
534
|
|
|
$
|
467
|
|
|
$
|
684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status (plan assets less than benefit obligations) at end
of year
|
|
$
|
(455
|
)
|
|
$
|
(529
|
)
|
|
$
|
(293
|
)
|
Amounts not recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss
|
|
|
576
|
|
|
|
712
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized on balance sheet
|
|
$
|
121
|
|
|
$
|
183
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized on balance sheet as:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(455
|
)
|
|
$
|
(529
|
)
|
|
$
|
(293
|
)
|
Accumulated other comprehensive loss
|
|
|
576
|
|
|
|
712
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized on balance sheet
|
|
$
|
121
|
|
|
$
|
183
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
988
|
|
|
$
|
996
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Cost and Additional
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
58
|
|
|
$
|
58
|
|
|
$
|
57
|
|
Expected return on plan assets
|
|
|
(34
|
)
|
|
|
(50
|
)
|
|
|
(49
|
)
|
Amortization of actuarial loss
|
|
|
62
|
|
|
|
37
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
86
|
|
|
$
|
45
|
|
|
$
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustments included in other comprehensive
income, net of tax
|
|
$
|
136
|
|
|
$
|
149
|
|
|
$
|
6
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used in computing ending
obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Weighted-average assumptions used in computing net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Expected return on plan assets
|
|
|
7.50
|
%
|
|
|
7.50
|
%
|
|
|
8.00
|
%
|
F-36
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
The expected long-term rate of return on plan assets for
determining net periodic pension cost for each fiscal year is
chosen by the Company from a best estimate range determined by
applying anticipated long-term returns and long-term volatility
for various asset categories to the target asset allocation of
the defined benefit pension plan, as well as taking into account
historical returns.
Using the asset allocation policy as currently in place for the
defined benefit pension plan (60% in total equity
securities 45% large/mid cap stocks and 15% small
cap stocks; 40% in fixed income securities), the Company
determined the expected rate of return at a 50% probability of
achievement level based on (a) forward-looking rate of
return expectations for passively-managed asset categories over
a 20-year
time horizon and (b) historical rates of return from 1926
through 2005 for passively-managed asset categories with
available data. Applying an approximately 75%/25% weighting (for
conservatism) to the rates determined in (a) and (b),
respectively, produced an expected rate of return of 7.60% which
was rounded to 7.50%.
Plan
Assets
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Plan Assets
|
|
|
|
at
|
|
|
|
December 31,
|
|
Asset Category
|
|
2009
|
|
|
2008
|
|
|
Equity securities
|
|
|
61
|
%
|
|
|
60
|
%
|
Debt securities
|
|
|
37
|
%
|
|
|
38
|
%
|
Other
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Following is a description of the valuation methodologies used
for pension plan assets measured at fair value.
|
|
|
|
|
Equity Securities and Debt Securities: Valued
at the net asset value (NAV) of shares held by the
pension plan at year-end. The NAV is a quoted price in an active
market (Level 1).
|
|
|
|
Other (Cash Equivalents and Commingled
Funds): Valuation determined by the trustee of
the money market funds and commingled funds based on the fair
value of the underlying securities within the fund, which
represent the NAV, a practical expedient to fair value, of the
units held by the pension plan at year-end. (Level 2)
|
Cash
Flows
The Company expects to contribute approximately $50 to its
defined benefit pension plan in the year ending
December 31, 2010.
The following benefit payments are expected to be paid:
|
|
|
|
|
Years Ending December 31:
|
|
Amount
|
|
2010
|
|
$
|
71
|
|
2011
|
|
|
69
|
|
2012
|
|
|
67
|
|
2013
|
|
|
66
|
|
2014
|
|
|
66
|
|
Years
2015-2019
|
|
|
360
|
|
F-37
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 17.
|
Lease
Commitments
|
The Company leases administrative and operations space under
noncancelable operating lease agreements that expire between
2010 and 2018, and require various minimum annual rentals. In
addition, certain leases also require the payment of property
taxes, normal maintenance, and insurance on the properties. The
Company also leases certain vehicles and equipment under
noncancelable operating lease agreements that expire between
2010 and 2013.
The approximate minimum rental commitment as of
December 31, 2009, excluding executory costs, is due as
follows:
|
|
|
|
|
Years Ending December 31:
|
|
Amount
|
|
|
2010
|
|
$
|
1,517
|
|
2011
|
|
|
1,019
|
|
2012
|
|
|
825
|
|
2013
|
|
|
152
|
|
2014
|
|
|
34
|
|
Thereafter
|
|
|
113
|
|
|
|
|
|
|
|
|
$
|
3,660
|
|
|
|
|
|
|
Total rental expense for the years ended December 31, 2009,
2008 and 2007, was approximately $1,806, $2,096 and $1,562,
respectively.
|
|
Note 18.
|
Other
Commitments and Contingencies
|
Environmental
Remediation Matters
Metalico, Inc. began operations in Tennessee by acquiring
General Smelting & Refining, Inc. (GSR) in
1997. Operations ceased at GSR in December 1998, and thereafter
it commenced closure activities. Metalico, Inc. incorporated
Metalico-College Grove, Inc. (MCG) in July 1998 as
another wholly-owned subsidiary and later in 1998 MCG purchased
substantially all of the net assets of GSR inclusive of a new
plant that was constructed (and completed in 1998) adjacent
to the GSR plant originally acquired. Secondary lead smelting
and refining operations in Tennessee were conducted thereafter
by MCG until operations were ceased in 2003.
In connection with the purchase of GSR, anticipated
environmental remediation costs to maintain the original plant
owned by GSR in accordance with environmental regulations were
accrued. In 2003, the Company increased the accrued liability
based on an interim measures work plan submitted to the
Tennessee Department of Environment and Conservation
(TDEC) in January 2004 and an estimate of remaining
remediation and maintenance costs applicable to the GSR
property. As of December 31, 2009 and December 31,
2008, estimated remaining environmental remediation costs
reported as a component of accrued expenses were approximately
$1,021 and $879, respectively. Of the $1,021 accrued as of
December 31, 2009, approximately $176 is reported as a
current liability and the remaining $845 is estimated to be
incurred and paid as follows: $63 from 2011 through 2012 and
$782 thereafter. These costs include the post-closure monitoring
and maintenance of the landfills at this facility and
decontamination and related costs incurred applicable to
continued decommissioning of property owned by MCG. While
changing environmental regulations might alter the accrued
costs, management does not currently anticipate a material
adverse effect on estimated accrued costs. Under certain
circumstances, a regulatory agency controls the escrow account
and will release withdrawals to the Company upon written
evidence of permitted closure or post-closure billings or of
expenditures made by the Company in such an effort.
In March 2005, Metalico, Inc.s subsidiary in Tampa,
Florida, Gulf Coast Recycling, Inc. (GCR), received
an information request and notice of potential liability from
the EPA (the Request and Notice) regarding
F-38
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
contamination at a site in Seffner, Florida (the Jernigan
Site) alleged to have occurred in the 1970s. GCR
retained any potential liability for the Jernigan Site when it
sold its assets on May 31, 2006. The Request and Notice
also identified nine other potentially responsible parties
(PRPs) in addition to GCR. Effective October 3, 2006,
the EPA, GCR, and one other PRP entered into a settlement
agreement for the northern portion of the Jernigan Site (the
Northern Settlement Agreement) and the EPA, GCR, and
another PRP entered into a settlement agreement for the southern
portion of the Jernigan Site (the Southern Settlement
Agreement) providing in each case for the remediation of
the affected property. The remediation of the Jernigan Site has
been substantially completed at a cost of $3,300. GCRs
liability for remediation costs has been reduced by $200 as a
result of contribution and participation agreements entered into
by GCR and the two PRPs respectively party to the two
Settlement Agreements. The Company estimates future maintenance
and response costs for the Jernigan Site at $652. On
February 11, 2009, the Company received a $500 payment from
a former lead supplier of GCR in lieu of future potential
liability claims and was recorded in income from discontinued
operations.
GCR is a party to four other consent orders governing
remediation and monitoring of various sites in the greater Tampa
area. All agreed remediation under those orders has been
completed. The Company and its subsidiaries are at this time in
material compliance with all of their obligations under the
consent orders.
Pursuant to the sale of substantially all of the assets of GCR
in May of 2006 (See Note 19), the Company has transferred
approximately $1,461 in recorded environmental liability
exposure to the purchaser. The Company has however retained
various other environmental liability exposure issues at GCR,
for certain off-site
clean-up and
remediation matters. GCR has included an estimate of liability
regarding environmental matters inclusive of the EPA and FDEP
past response costs claims and an estimate of future response
costs as obtained from environmental consultants or otherwise to
address the applicable remediation actions in its accrued
environmental remediation liabilities. Accrued liabilities in
the accompanying December 31, 2009 and 2008, balance sheets
include approximately $816 and $753, respectively, applicable to
GCRs various outstanding remediation issues. Of the $816
accrued as of December 31, 2009, $486 is reported as a
current liability and the remaining $329 is estimated to be
incurred and paid as follows: $14 from 2011 through 2012 and
$315 thereafter. The remaining $329 reported in long term
liabilities represents an estimate of future monitoring and
maintenance costs of the Jernigan site. In the opinion of
management, the accrued amounts mentioned above applicable to
GCR are adequate to cover its existing environmental obligations
related to such plant.
The Company does not carry, and does not expect to carry for the
foreseeable future, significant insurance coverage for
environmental liability (other than a policy covering conditions
existing at the Syracuse facility prior to its acquisition by
the Company) because the Company believes that the cost for such
insurance is not economical. Accordingly, if the Company were to
incur liability for environmental damage in excess of accrued
environmental remediation liabilities, its financial position,
results of operations, and cash flows could be materially
adversely affected.
Litigation
On January 25, 2008, our Metalico Catcon, Inc. subsidiary,
now known as American Catcon, Inc. (American Catcon)
closed a purchase of substantially all of the operating assets
of American Catcon Holdings, LLC (ACC) and retained
a principal of ACC as general manager. In October of 2008,
American Catcon terminated the general manager and, with
Metalico, Inc., commenced arbitration against him, ACC, and its
owners in connection with representations made at closing. The
manager counterclaimed for wrongful termination. On
June 17, 2009, ACC Texas filed a separate suit in the
U.S. District Court for the Western District of Texas
seeking to enforce a guaranty of a sellers note by
Metalico, Inc. outside the arbitration proceeding. On
August 6, 2009, the court granted the Companys motion
to stay the suit pending the outcome of the arbitration
proceeding. In December of 2009 the parties settled all claims
and counterclaims and subsequently withdrew all pending
proceedings.
F-39
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
In September of 2006, Niles Iron & Metal Company, Inc.
(NIMCO) filed suit against Metalico, Inc. and
Metalico Niles, Inc. (Metalico Niles), a subsidiary
of Metalico, Inc., in the Court of Common Pleas of Trumbull
County, Ohio, after the contemplated purchase of NIMCOs
assets by Metalico did not close. In December of 2009 the
parties agreed to settle the dispute. On December 18, 2009
the Court entered a dismissal of all claims and counterclaims.
Other
Matters
As of December 31, 2009, approximately 10% of the
Companys workforce was covered by collective bargaining
agreements, none of which expire in 2010.
The Company is involved in certain other legal proceedings and
litigation arising in the ordinary course of business. In the
opinion of management, the outcome of such other proceedings and
litigation will not materially affect the Companys
financial position, results of operations, or cash flows.
|
|
Note 19.
|
Discontinued
Operations
|
On May 31, 2006, the Company sold substantially all of the
lead smelting assets of its Gulf Coast Recycling, Inc,
(GCR) subsidiary, in Tampa, Florida and will no
longer conduct lead smelting and refining operations.
The loss from the GCR discontinued subsidiary for the years
ended December 31, 2009, 2008 and 2007, consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs and expenses
|
|
|
252
|
|
|
|
1,463
|
|
|
|
1,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(252
|
)
|
|
|
(1,463
|
)
|
|
|
(1,582
|
)
|
Other income(expense)
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
221
|
|
|
$
|
(1,463
|
)
|
|
$
|
(1,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2003, the Companys Board of Directors approved a
plan for the shutdown of operations and closure of its secondary
lead smelting and refining plant in College Grove, Tennessee
(Metalico-College Grove, Inc.).
The income (loss) from the Metalico-College Grove, Inc.
discontinued subsidiary for the years ended December 31,
2009, 2008 and 2007, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Costs and expenses
|
|
|
186
|
|
|
|
520
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(186
|
)
|
|
|
(520
|
)
|
|
|
(100
|
)
|
Other income
|
|
|
322
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136
|
|
|
$
|
(520
|
)
|
|
$
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 15, 2009, the Company sold the property on
which the former secondary lead smelting and refining facility
was located for $800. The Company received $160 in cash and two
notes receivable amounting to $640. One note bears interest at
5.0% annually with both interest and principal due on
June 15, 2011. The second note receivable also bears
interest at 5.0% and is payable in monthly installments of $3
with a balloon payment of $419 due on December 15, 2014.
After closing costs, the Company recorded a gain of $320 on the
sale.
F-40
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 20.
|
Segment
Reporting
|
The Company had two operating segments for the years ended
December 31, 2009, 2008 and 2007. Reference should be made
to Note 19 regarding discontinued operations. The segments
are distinguishable by the nature of their operations and the
types of products sold. The accounting policies of the operating
segments are generally the same as described in Note 1.
Corporate and Other includes the cost of providing and
maintaining corporate headquarters functions, including
salaries, rent, legal, accounting, travel and entertainment
expenses, depreciation, utility costs, outside services and
interest cost other than direct equipment financing. Beginning
in 2007, the
F-41
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Company began allocating acquisition interest and management
fees from corporate to the operating segments. Listed below is
financial data as of or for the years ended December 31,
2009, 2008 and 2007, for these segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lead
|
|
|
|
|
|
|
|
|
|
Scrap Metal
|
|
|
Fabrication
|
|
|
Corporate
|
|
|
|
|
|
|
Recycling
|
|
|
and Recycling
|
|
|
and Other
|
|
|
Consolidated
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
229,238
|
|
|
$
|
62,495
|
|
|
$
|
|
|
|
$
|
291,733
|
|
Operating profit (loss)
|
|
|
12,853
|
|
|
|
2,713
|
|
|
|
(1,848
|
)
|
|
|
13,718
|
|
Depreciation and amortization expense
|
|
|
11,551
|
|
|
|
1,662
|
|
|
|
27
|
|
|
|
13,240
|
|
Gain on acquisition
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
|
(866
|
)
|
Interest expense
|
|
|
10,158
|
|
|
|
95
|
|
|
|
5,604
|
|
|
|
15,857
|
|
Total assets
|
|
|
241,215
|
|
|
|
36,195
|
|
|
|
16,006
|
|
|
|
293,416
|
|
Capital expenditures on property and equipment acquired in
business acquisitions
|
|
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
2,770
|
|
Capital expenditures on other property and equipment
|
|
|
2,477
|
|
|
|
501
|
|
|
|
44
|
|
|
|
3,022
|
|
Expenditures for other intangibles
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
723,725
|
|
|
$
|
89,346
|
|
|
$
|
5,124
|
|
|
$
|
818,195
|
|
Operating loss
|
|
|
(24,583
|
)
|
|
|
(12,242
|
)
|
|
|
(3,132
|
)
|
|
|
(39,957
|
)
|
Depreciation and amortization expense
|
|
|
11,235
|
|
|
|
1,423
|
|
|
|
206
|
|
|
|
12,864
|
|
Impairment charge
|
|
|
54,644
|
|
|
|
4,399
|
|
|
|
|
|
|
|
59,043
|
|
Interest expense
|
|
|
13,791
|
|
|
|
530
|
|
|
|
3,034
|
|
|
|
17,355
|
|
Total assets
|
|
|
208,463
|
|
|
|
39,228
|
|
|
|
92,602
|
|
|
|
340,293
|
|
Capital expenditures on property and equipment acquired in
business acquisitions
|
|
|
30,502
|
|
|
|
|
|
|
|
|
|
|
|
30,502
|
|
Capital expenditures on other property and equipment
|
|
|
6,465
|
|
|
|
4,441
|
|
|
|
237
|
|
|
|
11,143
|
|
Capital expenditures on goodwill
|
|
|
26,930
|
|
|
|
|
|
|
|
|
|
|
|
26,930
|
|
Capital expenditures on other intangibles
|
|
|
47,326
|
|
|
|
|
|
|
|
|
|
|
|
47,326
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
240,894
|
|
|
$
|
93,319
|
|
|
$
|
|
|
|
$
|
334,213
|
|
Operating profit (loss)
|
|
|
17,316
|
|
|
|
13,223
|
|
|
|
(1,176
|
)
|
|
|
29,363
|
|
Depreciation and amortization expense
|
|
|
4,978
|
|
|
|
1,260
|
|
|
|
41
|
|
|
|
6,279
|
|
Interest expense
|
|
|
6,928
|
|
|
|
373
|
|
|
|
(1,418
|
)
|
|
|
5,883
|
|
Total assets
|
|
|
185,107
|
|
|
|
61,818
|
|
|
|
22,645
|
|
|
|
269,570
|
|
Capital expenditures on property and equipment acquired in
business acquisitions
|
|
|
9,264
|
|
|
|
|
|
|
|
|
|
|
|
9,264
|
|
Capital expenditures on other property and equipment
|
|
|
9,455
|
|
|
|
2,131
|
|
|
|
46
|
|
|
|
11,632
|
|
Goodwill
|
|
|
49,498
|
|
|
|
|
|
|
|
|
|
|
|
49,498
|
|
Expenditures for other intangibles
|
|
|
18,360
|
|
|
|
|
|
|
|
|
|
|
|
18,360
|
|
F-42
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
The Companys revenue by product line or service for the
years ended December 31, 2009, 2008 and 2007, consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Scrap Metal Recycling
|
|
|
|
|
|
|
|
|
|
|
|
|
Ferrous metals
|
|
$
|
77,954
|
|
|
$
|
214,680
|
|
|
$
|
78,699
|
|
Non-ferrous metals
|
|
|
81,927
|
|
|
|
172,715
|
|
|
|
129,032
|
|
PGM material
|
|
|
69,357
|
|
|
|
336,330
|
|
|
|
33,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,238
|
|
|
|
723,725
|
|
|
|
240,894
|
|
Lead Fabrication
|
|
|
62,495
|
|
|
|
89,346
|
|
|
|
93,319
|
|
Other
|
|
|
|
|
|
|
5,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
291,733
|
|
|
$
|
818,195
|
|
|
$
|
334,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 21.
|
Statements
of Cash Flows Information
|
The Company made net cash payments for income taxes of
approximately ($9,318), $9,539 and $7,860 (net of (payments)
refunds ($161), $146 and $448) and for interest of approximately
$14,605, $14,815, and $5,146 during the years ended
December 31, 2009, 2008 and 2007, respectively.
The following describes the Companys noncash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Issuance of common stock for business acquisitions (see
Note 2)
|
|
$
|
|
|
|
$
|
7,832
|
|
|
$
|
|
|
Issuance of short and long-term debt for business acquisition
|
|
|
1,842
|
|
|
|
3,860
|
|
|
|
|
|
Issuance of common stock on debt conversion
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in exchange for warrants exercised
|
|
|
|
|
|
|
|
|
|
|
686
|
|
Issuance of note receivable for sale of assets
|
|
|
640
|
|
|
|
|
|
|
|
|
|
Termination of redemption option on redeemable common stock
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap contract, net of
deferred tax
|
|
|
9
|
|
|
|
300
|
|
|
|
63
|
|
Increase (decrease) in funded status of pension plan, net of
deferred tax
|
|
|
(85
|
)
|
|
|
149
|
|
|
|
6
|
|
F-43
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 22.
|
Earnings
Per Share attributable to Company Common Shareholders
|
Following is information about the computation of the earnings
per share attributable to Company common shareholders for the
years ended December 31, 2009, 2008 and 2007. For the years
ending December 31, 2009 and 2008, the calculation of
diluted loss per share is anti-dilutive and, therefore, is not
presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic and Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations available to Metalico
stockholders
|
|
$
|
(3,640
|
)
|
|
|
41,200,895
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic and Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations available to Metalico
stockholders
|
|
$
|
(42,430
|
)
|
|
|
35,136,316
|
|
|
$
|
(1.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Metalico
stockholders
|
|
$
|
15,671
|
|
|
|
29,004,254
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
|
|
|
|
160,875
|
|
|
|
|
|
Options and rights
|
|
|
|
|
|
|
173,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to Metalico
stockholders plus assumed conversions
|
|
$
|
15,671
|
|
|
|
29,338,751
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the net loss for the year ended December 31,
2009, 1,460,724 warrants, 1,311,045 options and
4,703,357 shares issuable upon conversion of convertible
notes were excluded in the computation of diluted net loss per
share because their effect would have been anti-dilutive.
As a result of the net loss for the year ended December 31,
2008, 1,153,649 warrants, 1,290,043 options and
4,703,357 shares issuable upon conversion of convertible
notes were excluded in the computation of diluted net loss per
share because their effect would have been anti-dilutive.
The Company also excludes stock options, warrants and
convertible notes with exercise or conversion prices that are
greater than the average market price from the calculation of
diluted net income per share because their effect would be
anti-dilutive. For the year ended December 31, 2007, 7,771
options had exercise prices greater than the average market
price and were excluded in the computation of diluted net income
per share because their effect would have been anti-dilutive.
F-44
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
|
|
Note 23.
|
Fair
Value Disclosure
|
ASC Topic 820 Fair Value Measurements and
Disclosures (ASC Topic 820) requires
disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate the fair value. In cases
where quoted market prices are not available, fair values are
based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. ASC Topic 820 excludes certain
financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
amounts disclosed do not represent the underlying value of the
Company.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate that value:
Cash and cash equivalents, trade receivables, accounts
payable and accrued liabilities: The carrying
amounts approximate the fair value due to the short maturity of
these instruments.
Notes payable and long-term debt: The carrying
amount is estimated to approximate fair value because the
interest rates fluctuate with market interest rates or the fixed
rates are based on estimated current rates for debt with similar
terms and maturities. The Company has determined that the fair
value of its 7% senior unsecured convertible notes is
unascertainable due to the lack of public trading market and the
inability to currently obtain financing with similar terms in
the current economic environment. The convertible notes are
included in the balance sheet at December 31, 2009 at
$80,374 which is inclusive of unamortized discount of $1,237.
The Notes bear interest at 7% per annum, payable in cash, and
will mature in April 2028.
Seller Put obligations: Obligations under
seller put options are recorded at the present value of the
maximum expected potential purchase liability. Discounts are
amortized on an effective interest method from the date of
acquisition to the required purchase date.
Interest Rate Swap and obligations under purchase
contracts: The carrying amounts are equal to fair
value based upon quoted prices.
Put Warrants: The carrying amounts are equal
to fair value.
Obligations under make-whole agreements: For
the year ending December 31, 2009, the liability represents
the actual amounts disbursed in subsequent period. For the year
ending December 31, 2008, the liability is valued based on
the present value of probability-weighted estimated cash flows.
Other assets and liabilities of the Company that are not defined
as financial instruments are not included in the above
disclosures, such as property and equipment. Also, non-financial
instruments typically not recognized in financial statements
nevertheless may have value but are not included in the above
disclosures. These include, among other items, the trained work
force, customer goodwill and similar items.
Effective January 1, 2008, the Company adopted ASC Topic
820. ASC Topic 820 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants. Under ASC Topic 820, fair value
measurements are not adjusted for transaction costs. ASC Topic
820 establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices
in active markets for
F-45
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
identical assets or liabilities (Level 1 measurement
inputs) and the lowest priority to unobservable inputs
(Level 3 measurement inputs). The three levels of the fair
value hierarchy under ASC Topic 820 are described below:
Basis of Fair Value Measurement:
|
|
|
|
|
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).
|
The following table presents the Companys liabilities that
are measured and recognized at fair value on a recurring basis
classified under the appropriate level of the fair value
hierarchy as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
Liabilities
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Put warrants
|
|
|
|
|
|
|
|
|
|
$
|
3,289
|
|
|
$
|
3,289
|
|
Obligations under make-whole agreements
|
|
$
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
1,204
|
|
Interest rate swaps
|
|
|
|
|
|
$
|
880
|
|
|
|
|
|
|
|
880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
Liabilities
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Put warrants
|
|
|
|
|
|
|
|
|
|
$
|
412
|
|
|
$
|
412
|
|
Obligations under purchase contracts
|
|
|
|
|
|
$
|
1,973
|
|
|
|
|
|
|
|
1,973
|
|
Obligations under make-whole agreements
|
|
|
|
|
|
|
|
|
|
|
3,546
|
|
|
|
3,546
|
|
Interest rate swaps
|
|
|
|
|
|
|
1,028
|
|
|
|
|
|
|
|
1,028
|
|
Following is a description of valuation methodologies used for
liabilities recorded at fair value:
Put Warrants: The put warrants are valued
using the Black-Scholes method. The average value per
outstanding warrant at December 31, 2009 is computed to be
$2.32 using a discount rate of 2.69% and an average volatility
factor of 87.5%.
Obligations under purchase contracts: The
liability is valued based on the present value of the forward
contract rate of the purchase contract.
Obligations under make-whole agreements: For
the year ending December 31, 2009, the liability represents
the actual amounts to be disbursed in the subsequent period
based on the selling price of the Companys common stock
under the agreement entered into in connection with the
termination of the redemption feature related to redeemable
common stock.
For the year ending December 31, 2008, the liability is
valued based on the present value of probability-weighted
estimated cash flows in connection with the agreement entered
into in connection with the Pittsburgh acquisition.
Interest Rate Swaps: Interest rate swaps are
valued by means of a mathematical model that calculates the
present value of the anticipated cash flows from the transaction
using mid-market prices and other economic data and assumptions.
F-46
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
ASC Topic 820 requires a reconciliation of the beginning and
ending balances for assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs
(Level 3) during the period. For these Level 3
assets, the reconciliation is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
Using Significant Unobservable Inputs (Level 3)
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Obligation under
|
|
|
|
|
|
|
|
|
Obligation under
|
|
|
|
|
|
|
|
|
|
make-whole
|
|
|
|
|
|
|
|
|
make-whole
|
|
|
|
|
|
|
Put Warrants
|
|
|
agreements
|
|
|
Total
|
|
|
Put Warrants
|
|
|
agreements
|
|
|
Total
|
|
|
Beginning balance
|
|
$
|
412
|
|
|
$
|
3,546
|
|
|
$
|
3,958
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Purchases, issuances and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,076
|
|
|
|
475
|
|
|
|
7,551
|
|
Total (gains) or losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
2,877
|
|
|
|
(843
|
)
|
|
|
2,034
|
|
|
|
(6,664
|
)
|
|
|
4,721
|
|
|
|
(1,943
|
)
|
Included in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments, conversions, redemptions and additional issued shares
|
|
|
|
|
|
|
( 2,703
|
)
|
|
|
(2,703
|
)
|
|
|
|
|
|
|
(1,650
|
)
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,289
|
|
|
$
|
|
|
|
$
|
3,289
|
|
|
$
|
412
|
|
|
$
|
3,546
|
|
|
$
|
3,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 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
|
|
$
|
2,877
|
|
|
$
|
|
|
|
$
|
2,877
|
|
|
$
|
(6,664
|
)
|
|
$
|
3,071
|
|
|
$
|
(3,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 24
Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risks managed by using
derivative instruments are commodity price risk and interest
rate risk. Forward purchase contracts on precious metal
commodities are entered into to manage the price risk associated
with volatile commodity prices. The Companys forward sales
contracts with PGM substrate processors are not subject to any
hedge designation as they are considered within the normal sales
exemption provided by ASC Topic 815. Interest rate swaps are
entered into to manage interest rate risk associated with the
Companys variable-rate borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
|
|
Fair Value at
|
|
|
Fair Value at
|
|
Derivatives Designated
|
|
Balance Sheet
|
|
December 31,
|
|
|
December 31,
|
|
as Hedging Instruments
|
|
Location
|
|
2009
|
|
|
2008
|
|
|
Commodity purchase contracts
|
|
Other Current Liabilities
|
|
$
|
|
|
|
$
|
1,973
|
|
Interest Rate Swap
|
|
Other Non-current Liabilities
|
|
$
|
880
|
|
|
$
|
1,028
|
|
Cash Flow
Hedges
In accordance with ASC Topic 815, the Company designates certain
interest rate hedges as cash flow hedges. The Company is subject
to variable interest rates under the Loan Agreement described in
Note 10. In order to mitigate exposure to increasing
interest rates on this variable rate debt the Company uses an
interest rate swap
F-47
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
effectively converting the interest rate from variable to fixed.
For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on
the derivative is reported as a component of other comprehensive
income (OCI) and reclassified into earnings in the same period
or periods during which the hedged transaction affects earnings.
Gains and losses on the derivative representing either hedge
ineffectiveness or hedge components excluded from the assessment
of effectiveness are recognized in current earnings.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss)
|
|
|
|
Amount of (Loss)
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
Recognized in
|
|
|
|
|
|
Derivatives (Ineffective
|
|
|
|
OCI on Derivatives
|
|
|
Location of (Loss)
|
|
|
Portion)
|
|
|
|
(Effective Portion)
|
|
|
Recognized in Income on
|
|
|
Year Ended
|
|
Derivatives Designated as Cash Flow
|
|
Year Ended December 31,
|
|
|
Derivatives
|
|
|
December 31,
|
|
Hedging Instruments Under ASC Topic 815
|
|
2009
|
|
|
2008
|
|
|
(Ineffective Portion)
|
|
|
2009
|
|
|
2008
|
|
|
Interest Rate Swap
|
|
$
|
(9
|
)
|
|
$
|
(300
|
)
|
|
|
Interest expense
|
|
|
$
|
(282
|
)
|
|
$
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Hedges
The Company purchases and holds forward purchase contracts on
precious metals to reduce its exposure to significant changes in
commodity prices and the market value of its inventory. For
derivative instruments that are designated and qualify as fair
value hedges (i.e., hedging the exposure to changes in the fair
value of an asset or a liability or an identified portion
thereof that is attributable to a particular risk), the gain or
loss on the derivative instrument as well as offsetting the loss
or gain on the hedged item attributable to the hedged risk are
recognized in the same line item associated with the hedged item
(i.e., in operating expenses when the hedged item is
inventory). The following tables present the impact of
derivative instruments designated as fair value hedges and their
location within the unaudited Consolidated Statements of
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain or (Loss)
|
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
Location of Gain or
|
|
|
Derivative
|
|
|
|
(Loss) Recognized
|
|
|
Year Ended
|
|
Derivatives Designated as Fair Value
|
|
in Income of
|
|
|
December 31,
|
|
|
December 31,
|
|
Hedging Instruments ASC Topic 815
|
|
Derivative
|
|
|
2009
|
|
|
2008
|
|
|
Commodity purchase contracts
|
|
|
Operating expenses
|
|
|
$
|
1,010
|
|
|
$
|
(2,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not have any derivative instruments that
contain credit-risk-related contingent features.
|
|
Note 25.
|
Recent
Accounting Pronouncements
|
In June 2009, the FASB updated certain provisions of ASC 810.
These provisions amend the consolidation guidance applicable to
variable interest entities and the definition of a variable
interest entity, and require enhanced disclosures to provide
more information about an enterprises involvement in a
variable interest entity. ASC 810 also requires ongoing
assessments of whether an enterprise is the primary beneficiary
of a variable interest entity. This analysis identifies the
primary beneficiary of a variable interest entity as the
enterprise that has both of the following characteristics:
a) The power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance.
b) The obligation to absorb losses of the entity that could
potentially be significant to the variable interest entity or
the right to receive benefits from the entity that could
potentially be significant to the variable interest entity.
F-48
Metalico,
Inc. and Subsidiaries
Notes to
Consolidated Financial
Statements (Continued)
($
thousands, except share data)
Additionally, an enterprise is required to assess whether it has
an implicit financial responsibility to ensure that a variable
interest entity operates as designed when determining whether it
has the power to direct the activities of the variable interest
entity that most significantly impact the entitys economic
performance.
This Statement shall be effective as of the beginning of each
reporting entitys first annual reporting period that
begins after November 15, 2009, for interim periods within
that first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited.
The adoption of this issuance could have a material affect on
the Companys financial statements.
In December 2007, the FASB issued revised standards on business
combinations and accounting and reporting of noncontrolling
interests in consolidated financial statements. The revised
standards will significantly change the financial accounting and
reporting of business combination transactions. The most
significant changes from current practice will require Companies
to recognize contingent consideration arrangements at their
acquisition-date fair values, with subsequent changes in fair
value generally reflected in earnings; with certain exceptions,
recognize preacquisition loss and gain contingencies at their
acquisition-date fair values; capitalize in-process research and
development assets; expense acquisition-related transaction
costs as incurred; and limit the capitalization of
acquisition-related restructuring as of the acquisition date. In
addition, changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the
measurement period will be recognized in earnings rather than as
an adjustment to the cost of acquisition. The Company adopted
this standard on December 1, 2009. As a result of this new
accounting standard, the Company recorded a gain of $866 on
acquisition of the assets of Youngstown Iron & Metal,
Inc. on December 8, 2009 (See Note 2). This standard
will continue to have a material effect on the financial
accounting for any acquisition completed after December 1,
2009.
Regarding the adoption of reporting of noncontrolling interests,
the accounting change was applied prospectively with the
exception of presentation and disclosure requirements, which
were applied retrospectively for the comparative periods
presented, and did not significantly change the presentation of
the Companys consolidated financial statements.
|
|
Note 26.
|
Subsequent
Events
|
The Company has evaluated subsequent events through the date of
filing.
On March 2, 2010, the Company entered into a Credit
Agreement (the Credit Agreement) with a syndicate of
lenders led by JPMorgan Chase Bank, N.A. See Note 10 for
terms of this new Credit Agreement.
F-49