SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7170
IMCO Recycling Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2008280
(I.R.S. Employer Identification No.)
5215 North O'Connor Blvd.
Suite 940
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices)
(214) 869-6575
(Registrant's telephone number, including area code)
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 X No____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1996.
Common Stock, $0.10 par value, 11,846,119
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,998 $ 8,678
Accounts receivable 29,336 27,442
Inventories 9,291 9,146
Deferred income tax 1,279 1,298
Other current assets 1,540 1,353
---------- ---------
TOTAL CURRENT ASSETS 50,444 47,917
PROPERTY AND EQUIPMENT, NET 78,350 78,769
INTANGIBLE ASSETS
Excess acquisition cost over the fair value of net
assets acquired, net of amortization of $4,098
and $3,866, respectively. 10,901 10,968
Patents 218 233
---------- ---------
TOTAL INTANGIBLE ASSETS 11,119 11,201
OTHER ASSETS, NET 2,358 1,990
---------- ---------
$ 142,271 $ 139,877
========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,041 $ 10,691
Accrued liabilities 5,270 7,059
Current maturities of long-term debt 2,160 2,169
---------- ---------
TOTAL CURRENT LIABILITIES 20,471 19,919
LONG-TERM DEBT 29,231 29,754
OTHER LONG-TERM LIABILITIES 1,247 1,412
DEFERRED INCOME TAX 5,544 5,516
STOCKHOLDERS' EQUITY
Preferred Stock; par value $.10; 8,000,000
shares authorized; none issued -- --
Common Stock; par value $.10; 20,000,000
shares authorized; 11,964,911 issued at March
31,1996; and December 31, 1995 1,196 1,196
Additional paid in capital 27,372 27,282
Retained earnings 59,046 56,672
Treasury stock, at cost; 173,409 shares at March 31, 1996;
207,972 at December 31, 1995 (1,836) (1,874)
------- -------
85,778 83,276
------- -------
$ 142,271 $ 139,877
=========== ==========
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(dollars in thousands, except per share)
<TABLE>
<CAPTION>
For the three months ended March 31,
1996 1995
---- ----
<S> <C> <C>
REVENUES $ 50,718 $ 30,746
Cost of sales 42,828 23,311
------ ------
GROSS PROFIT 7,890 7,435
Selling, general and
administrative expense 2,981 2,395
Equity earnings (307) --
Interest expense 610 280
Interest income (144) (64)
----- ----
INCOME BEFORE PROVISION
FOR INCOME TAXES 4,750 4,824
Provision for income taxes 1,787 1,930
----- -----
NET EARNINGS $ 2,963 $ 2,894
========== ==========
Net earnings per common
share $ 0.24 $ 0.24
========== ==========
Dividends declared per common share
$ .05 --
========== ==========
Weighted average common and common
equivalent shares outstanding 12,392,793 11,914,910
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 2,963 $ 2,894
Depreciation and amortization 2,776 2,208
Earnings from affiliated companies (307) --
Provision for deferred income taxes 47 310
Other noncash charges 249 279
(Gain) on sale of property and equipment -- (29)
Changes in noncash components of working capital
(excluding investing and financing
transactions)
Accounts receivable (1,902) (272)
Inventories (145) (476)
Other current assets (186) (299)
Accounts payable and accrued liabilities 561 3,142
---- -----
NET CASH FLOWS FROM OPERATING
ACTIVITIES 4,056 7,757
INVESTING ACTIVITIES:
Purchase of property and equipment (2,256) (1,643)
Other (486) (11)
----- ----
NET CASH USED BY INVESTING ACTIVITIES (2,742) (1,654)
FINANCING ACTIVITIES:
Principal payments of long-term debt (532) (454)
Dividends paid (589) (1,151)
Other 127 53
----- --
NET CASH USED BY FINANCING
TRANSACTIONS (994) (1,552)
----- -------
Net increase in Cash and Cash Equivalents 320 4,551
Cash and Cash Equivalents at January 1 8,678 2,854
----- -----
Cash and Cash Equivalents at March 31 $ 8,998 $ 7,405
========== ==========
SUPPLEMENTARY INFORMATION:
Cash payments for interest $ 123 $ 97
Cash payments for income taxes $ 1,053 $ 234
</TABLE>
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The accompanying financial statements include the
accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1995.
NOTE B - INVENTORIES
The components of inventories are:
(dollars in thousands)
March 31, December 31,
1996 1995
---- ----
Finished goods $ 6,540 $ 6,839
Raw materials 2,443 1,986
Supplies 308 321
--- ---
$ 9,291 $ 9,146
======== ========
NOTE C - LONG-TERM DEBT
The Company's total capital spending in the first quarter of 1996 was
$2,256,000. Capital expenditures for all of 1996 are expected to be
approximately $20,000,000. The majority of this spending will be in connection
with the new aluminum recycling facility the Company is constructing at
Coldwater, Michigan. The Company will own 75% of this facility which will
principally serve the automotive markets. Construction is expected to be
completed in early 1997. On May 13, 1996 the Company funded its portion of the
equity venture with VAW aluminium AG ("VAW"), the largest aluminum company in
Germany. The venture, VAW-IMCO Gus und Recycling GmbH ("VAW-IMCO"), has the
capacity to process 220 million pounds of aluminum annually. Income from this
venture is recorded on the Company's books as equity income. In April 1996 the
Company borrowed $15,000,000 under terms previously negotiated with The Mutual
Life Insurance Company of New York. Most of these proceeds were used to fund the
Company's portion of the VAW-IMCO venture.
In addition, on May 8, 1996, the Company received net proceeds of approximately
$5,569,000 from the issuance of $5,740,000 principal amount of Solid Waste
Disposal Facilities Revenue Bonds by the City of Morgantown, Kentucky. These
bonds were issued in connection with the Company's construction of its salt cake
processing plant at Morgantown which was completed in January 1996. See "RESULTS
OF OPERATIONS".
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is in the resource recovery industry and provides recycling services
for its customers who include most of the major U.S. primary manufacturers of
metal, aluminum diecasters, extruders, and other processors of aluminum
products. The Company's principal activity involves the recycling of aluminum
and aluminum scrap and by-products. The Company also recycles magnesium and
zinc. The Company's financial performance has been largely determined by the
volume of metal it processes. The largest portion of the Company's business is
the processing of customer-owned material for a fee (a service called
"tolling"). In addition to tolling, the Company also purchases material for
processing and resale ("buy/sell business"). Both the Company's tolling fees per
pound recycled and the selling price of metal it owns, recycles and sells for
its own account are included in revenues. Variations in the mix between these
two types of transactions, which have happened in the past, can cause revenue
amounts to change significantly from period to period while generally not
significantly affecting total gross profit, since both types of transactions
have approximately the same gross profit value per pound of metal processed.
The following table shows the total pounds of metal processed, the percentage of
total pounds processed represented by tolled metal, total revenues and total
gross profit for the three month periods ending March 31:
Three months
Ended March 31,
1996 1995
---- ----
In thousands, except percentages)
Pounds of Metal Processed 366,965 304,531
Percentage of Pounds Tolled 88% 96%
Revenues $ 50,718 $ 30,746
Gross Profit $ 7,890 $ 7,435
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
The Company processed 21% more metal in the three month period ended March 31,
1996 than it did in the same period of 1995. Aluminum processing at the
Company's newest facilities in Bedford, Indiana, Sikeston, Missouri and Chicago
Heights, Illinois which were purchased at the start of the fourth quarter of
1995, plus increased processing from the Loudon, Tennessee plant were the major
factors contributing to these increases. Partially offsetting these increases,
however, were the results from the Corona, California plant, where processing
was more than 30% lower than in the comparable period of 1995 due to unfavorable
market conditions on the west coast for recycling used beverage containers
(UBC's). The Company's other plants processed volumes which were similar to last
year's amounts.
<PAGE>
Revenues increased 65% in 1996's first quarter compared to 1995, mostly because
of increases in the buy/sell percentage of business. As noted above, an increase
in the buy/sell business generates a larger increase in revenues because the
value of metal is included in the selling price, compared to tolling which just
reflects the processing cost of metal as revenues. In 1996 the Company is
expected to generate a higher level of buy/sell business and a correspondingly
higher amount of revenues because of its acquisition of Metal Mark in 1995 which
has historically had about 50% of its business in buy/sell transactions. Tolling
activity represented 88% of the Company's processing for the three month period
ended March 31, 1996 compared to 96% for the same three month period of 1995. In
addition to increases in buy/sell business, it is expected that the Company, in
1996 and beyond, will have additional metal for sale due to operation of its
salt cake processing facility which was completed in January 1996. This
facility, which is located adjacent to the Company's Morgantown, Kentucky plant,
will process much of the Company's salt cake generated from its aluminum
recycling plants and recover additional amounts of aluminum for resale.
Magnesium volume processed was 19% higher in the first quarter of 1996 than in
the first quarter of 1995, while magnesium revenues were 45% higher in 1996 than
in 1995. Both of these increases are due to a higher level of anode production
as well as higher prices received for anodes in the 1996 period compared to the
same period in 1995. Zinc volume processed in the first quarter of 1996
increased 8% above 1995's first quarter amount, and sales revenues increased 50%
in 1996 compared to the same period in 1995. The increases in zinc revenues for
the first quarter of 1996 compared to 1995 was due to the increased processing
volumes as well as increases in zinc buy/sell business. Some customers which
were previously tolling their material opted to change to a buy/sell basis. This
also had the effect of increasing revenues, as discussed above.
Gross profit increased to $7,890,000 for the three months ended March 31, 1996
which was six percent higher than in the same period of 1995. The improvement is
due to increased processing volumes as discussed above which were offset to a
large degree by higher operating costs, particularly natural gas costs. Severe
winter weather at some of the Company's plants was responsible for the higher
natural gas cost and also negatively affected material collections and
deliveries. In addition, gross profit was adversely affected at the Corona and
Bedford plants because of lower operating rates there due to lower levels of
UBC's available for processing at those facilities. Low processing volumes have
continued into the second quarter at Corona, but some improvement is expected
during the second quarter at the Bedford plant.
Selling, general and administrative expenses were $2,981,000 for the three month
period ending March 31, 1996, compared to $2,395,000 for the similar period of
1995. Increased employee costs due to acquisitions in late 1995 is the main
reason for the increase.
Equity earnings of $307,000 were recorded in the first quarter of 1996. The
equity earnings were from the Company's investment in VAW-IMCO and from a joint
venture investment acquired in the Metal Mark acquisition. No equity income was
recorded in the first quarter of 1995 because the investments which generated
this income were made in late 1995 and early 1996. See "LIQUIDITY AND CAPITAL
RESOURCES".
Interest expense of $610,000 for the first quarter of 1996 was more than double
1995's amount of $280,000. This was due to higher amounts of long term debt
outstanding in 1996 compared to 1995. See "LIQUIDITY AND CAPITAL RESOURCES".
<PAGE>
Income before the provision for tax in 1996's first quarter of $4,750,000 was
similar to 1995's total of $4,824,000. The Company's effective income tax rate
was 38% in 1996 compared to about 40% in 1995's first quarter. The effective
rate was lower in 1996 because 1996 earnings before tax included income from
equity affiliates and 1995's earnings before tax did not.
As a result of all of the above, the Company reported net earnings of $
2,963,000 for the first quarter of 1996 which was about equal to the $2,894,000
recorded in the same period of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Operations provided cash of $ 4,056,000 in the first quarter of 1996, compared
to $7,757,000 in the same period of 1995. Working capital changes account for
virtually all of the differences between these numbers. Working capital items
resulted in a net use of cash in the amount of $1,672,000 in 1996 while working
capital provided cash of $2,095,000 in the same period of 1995. Increases in
accounts receivable ( a use of cash) due mainly to the higher level of sales,
particularly buy/sell sales, accounted for most of the cash usage in 1996.
Increases in accounts payable and accrued liabilities ( a source of cash) were
the main items affecting working capital in 1995.
The Company's total capital spending in the first quarter of 1996 was
$2,256,000. Capital expenditures for all of 1996 are expected to be
approximately $20,000,000. The majority of this spending will be in connection
with the new aluminum recycling facility the Company is constructing at
Coldwater, Michigan. The Company will own 75% of this facility which will
principally serve the automotive markets. Construction is expected to be
completed in early 1997. Early in May 1996 the Company funded its portion of the
equity venture with VAW. The venture, VAW-IMCO, has the capacity to process 220
million pounds of aluminum annually. Income from this venture is recorded on the
Company's books as equity income. In April 1996 the Company borrowed $15,000,000
under terms previously negotiated with The Mutual Life Insurance Company of New
York. Most of these proceeds were used to fund the Company's portion of the
VAW-IMCO venture which occurred on May 13, 1996.
In addition, on May 8, 1996, the Company received net proceeds of approximately
$5,569,000 from the issuance of $5,740,000 principal amount of Solid Waste
Disposal Facilities Revenue Bonds by the City of Morgantown, Kentucky. These
bonds were issued in connection with the Company's construction of its salt cake
processing plant at Morgantown which was completed in January 1996. See "RESULTS
OF OPERATIONS".
Financing activities in the first quarter of 1996 included the repayment of
$532,000 in long-term debt and the payment of $589,000 in dividends.
The Company feels that its cash on hand, the availability of funds under its
lines of credit and its anticipated internally generated funds will be
sufficient to fund its current needs and meet its obligations for the
foreseeable future.
At March 31, 1996, the relationship of current assets to current liabilities, or
current ratio, was 2.46 to 1, compared to 2.41 to 1 at December 31, 1995.
Working capital will fluctuate as the mix of buy/sell business and tolling
business changes relative to the total business, for the reasons discussed
above.
<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at March 31, 1996, and for the three
months then ended prior to filing and their report is included herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
The Note Purchase Agreements between the Company and The Mutual Life
Insurance Company of New York (MONY), which govern the terms and conditions of
an aggregate $38,000,000 of indebtedness owed by the Company to MONY, contain a
number of covenants by the Company. These covenants include restrictions on the
payment of cash dividends on and cash repurchases by the Company of its common
stock; as of March 31, 1996 retained earnings of $7,054,000 were not restricted
under these provisions and were available for these purposes. In addition, the
Agreements imposes requirements regarding the maintenance of certain working
capital levels (consolidated working capital must not be less than $5,000,000
and consolidated current assets may not be less than 125% of consolidated
current liabilities), net worth levels, and cash flow-to-interest-and-rental
levels, and contain provisions limiting amounts of total current indebtedness
outstanding ($12,000,000) and long-term indebtedness outstanding.
ITEM 4 . SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
15.1 Acknowledgment letter regarding unaudited
financial information from Ernst & Young LLP.
27 Financial Data Schedule
(b) Reports on Form 8-K - None.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
IMCO Recycling Inc.
Date: May 15, 1996 By: /s/ Robert R. Holian
Robert R. Holian
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Stockholders and Board of Directors
IMCO Recycling Inc.
We have reviewed the accompanying consolidated condensed balance sheet of IMCO
Recycling Inc. as of March 31, 1996, and the related consolidated statements of
earnings and cash flows for the three-month period ended March 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data, and making inquiries of persons responsible for financial and acocunting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed for the full
year with the objective of expressing an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, with the exception of the matter described in the
preceding paragraph, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of IMCO Recycling, Inc. as of December
31, 1995, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for the year then ended (not presented herein), and in
our report dated February 5, 1996 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated condensed balance sheet as of December 31, 1995,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet form which it has been derived.
/s/ Ernst + Young L.L.P.
Dallas, Texas
May 2, 1996
<PAGE>
ACKNOWLEDGEMENT LETTER
Stockholders and Board of Directors
IMCO Recylcling, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-26641) pertaining to the Nonqualified Stock Option Plan of IMCO
Recycling Inc. and the related Prospectus, in the Registration Statement (Form
S-8 No. 33-34745) pertaining to the the IMCO Recycling Amended and Restated
Stock Option Plan, in the Registration Statement (Form S-8 No. 33-76780)
pertaing to the IMCO Recycling Inc. 1992 Stock Option Plan and in the
Registration Statement (Form S-8 No. 333-00075) pertaining to the IMCO Recycling
Inc. Amended and Restated 1992 Stock Option Plan of our report dated May 2, 1996
relating to the unaudited condensed consolidated interim financial statements of
IMCO Recycling Inc. which are included in its Form 10-Q for the quarter ended
March 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the Registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 8,998
<SECURITIES> 0
<RECEIVABLES> 29,336
<ALLOWANCES> 0
<INVENTORY> 9,291
<CURRENT-ASSETS> 50,444
<PP&E> 113,830
<DEPRECIATION> 35,480
<TOTAL-ASSETS> 142,271
<CURRENT-LIABILITIES> 20,471
<BONDS> 29,231
0
0
<COMMON> 1,196
<OTHER-SE> 84,582
<TOTAL-LIABILITY-AND-EQUITY> 142,271
<SALES> 50,718
<TOTAL-REVENUES> 50,718
<CGS> 42,828
<TOTAL-COSTS> 42,828
<OTHER-EXPENSES> 2,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 610
<INCOME-PRETAX> 4,750
<INCOME-TAX> 1,787
<INCOME-CONTINUING> 2,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,963
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
