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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
(972) 869-6575
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Exchange on Which Registered
- ------------------- ----------------------------
Common Stock, $0.10 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's 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. [X]
As of March 21, 1997, the aggregate market value of voting stock held by
nonaffiliates of the Registrant was $167,261,985.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 21, 1997.
Common Stock, $0.10 par value, 12,532,865
------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to its 1997
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
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ITEM PAGE
- ---- ----
PART I
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the Registrant 40
Item 11. Executive Compensation 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management 40
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 41
Signatures 44
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PART I
ITEM 1. BUSINESS
GENERAL
The principal business of IMCO Recycling Inc. (the "Company") is owning and
operating aluminum recycling plants. The Company believes it is the world's
largest recycler of secondary aluminum, which includes used aluminum beverage
cans ("UBCs"), scrap and dross (a by-product of aluminum production). The
Company converts UBCs, scrap and dross into molten metal in furnaces, then
delivers it to customers in molten form or ingots. The Company recovers
magnesium via a relatively similar process and also recycles zinc. Except
where the context otherwise requires, the term "Company" as used herein refers
to IMCO Recycling Inc. and its subsidiaries.
The Company's strategy is to participate in sectors of the nonferrous metals
recycling industry in which it believes it can provide customers with a
technology-based, value-added service and in which it can develop significant
market share. A large percentage of the Company's processing capacity is
utilized to recycle scrap material and to charge a fee for this service (a
service called "tolling"). The Company intends to continue to expand its
business, both in the United States and abroad, (i) by establishing additional
aluminum recycling facilities which would be dedicated to one or more major
customers, (ii) by expanding its existing facilities, and (iii) by acquiring
or partnering with other similar recycling businesses. There can be no
assurance, however, that any such expansions or acquisitions will be
accomplished. See "SALES AND MARKETING" below.
The Company's business has benefited from the trend to include recycled
materials in finished products, and in particular, from the growth in the
production and use of aluminum beverage cans and their recycling. The
recycling of UBCs in the United States has increased because of economic,
legislative and environmental factors. According to industry estimates, the
number of aluminum beverage cans produced has increased from 34.7 billion in
1979 to approximately 100 billion, and the number of UBCs recycled increased
from 8.5 billion to approximately 60 billion.
The Company's principal customers include Aluminum Company of America
("Alcoa"), Commonwealth Aluminum Corporation ("Commonwealth"), formerly Barmet
Aluminum Corporation, Doehler Jarvis, Hunter Douglas, Majestic Metals and
Ravenswood Aluminum Corporation ("Ravenswood"), all of whom use aluminum
recycled by the Company to produce can sheet, building construction materials
or automotive products.
For the year ended December 31, 1996, approximately 83% of the Company's total
pounds of metal processed involved tolling. Tolling operations do not expose
the Company to the risk of commodity price fluctuations and impose relatively
low working capital demands; consequently, the Company prefers to utilize its
capacity where practicable for tolling. The balance of the Company's
processing is principally derived from dross and scrap purchased, recycled and
then sold by the Company ("buy/sell" business). See "OPERATIONS" below.
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BACKGROUND
The Company was organized in 1985 as Frontier Texas Corporation under the
corporate laws of Delaware. In September 1986, the Company acquired its
aluminum and magnesium recycling business through its purchase of
International Metal Co., an Oklahoma corporation. In September 1988,
International Metal Co. merged with and into the Company, and the Company
changed its name to IMCO Recycling Inc.
Since 1992, the Company has grown its number of plant facilities and capacity
through acquisitions of existing facilities and construction of new
facilities. Beginning in 1995, this growth strategy was accelerated.
In September 1995, the Company purchased all of the assets of an aluminum
recycling facility in Bedford, Indiana ("Bedford"). In addition, in October
1995, the Company acquired Metal Mark, Inc. ("Metal Mark"), which owned and
operated aluminum recycling facilities located in Chicago Heights, Illinois
and Sikeston, Missouri. See ITEM 2. "PROPERTIES."
In December 1995, the Company formed a joint venture, VAW-IMCO Guss
und Recycling GmbH ("VAW-IMCO"), with VAW aluminium AG, the largest aluminum
company in Germany. The Company has a 50% interest in this German venture
which owns and operates two recycling and foundry alloy facilities. The
plants principally serve the European automotive markets.
In January 1996, the Company completed the construction of its salt cake
processing facility which is located adjacent to the Company's Morgantown,
Kentucky plant. This new facility processes salt cake, a nonhazardous
by-product generated from the Company's aluminum recycling plants, through use
of materials separation technology and recovers additional amounts of aluminum
for resale that would otherwise be landfilled.
In 1996, the Company began construction of an aluminum recycling facility in
Coldwater, Michigan through its joint venture, IMCO Recycling of Michigan
L.L.C. ("IMCO of Michigan"). The Company is a 75% managing member of the
venture, which will have a long-term supply agreement for the delivery of hot
metal to its 25% member, Alchem Aluminum, Inc. ("Alchem"). Alchem
manufactures specification aluminum alloys that are sold principally to
automotive manufacturers. IMCO of Michigan started production during the
first quarter of 1997.
In 1996, the Company announced plans to construct an aluminum recycling
facility in Swansea, Wales, U.K. under its 100%-owned subsidiary IMCO
Recycling (UK) Ltd. ("Wales"). Construction of the Wales facility is expected
to be completed in the third quarter of 1997. The plant site is adjacent to
its principal customer, Alcoa Manufacturing (GB) Limited.
At year-end 1996, the Company owned and operated 11 domestic recycling plants
that have an aggregate annual processing capacity of approximately 1.4 billion
pounds of aluminum and approximately 50 million pounds of other metals. As
noted above, in addition to these wholly owned facilities, the Company is a
50% owner of (i) a facility in East Chicago, Indiana which has the ability to
process 80 million pounds of aluminum, and (ii) VAW-IMCO which has a
processing capacity of 280 million pounds of aluminum.
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RECENT DEVELOPMENTS
In January 1997, the Company completed the acquisitions of (i) IMSAMET, Inc.
("IMSAMET") a wholly owned subsidiary of EnviroSource, Inc. and (ii) Rock
Creek Aluminum, Inc. ("Rock Creek"). IMSAMET owns or has a majority interest
in three aluminum recycling plants located in Goodyear, Arizona; Post Falls,
Idaho and Wendover, Utah which together have an annual processing capacity of
approximately 440 million pounds. In addition, IMSAMET owns a 50% interest in
a joint venture facility, adjacent to the Utah plant, which uses a proprietary
process to reclaim materials from salt cake. Rock Creek operates three
facilities in Cleveland, Elyria and Rock Creek, Ohio. These facilities utilize
milling, shredding, blending, testing and packaging equipment to process
various types of raw materials, including aluminum dross and scrap, various
minerals and slags. Rock Creek's facilities have a total annual capacity of
approximately 150 million pounds. See NOTE J--SUBSEQUENT EVENTS of Notes
to the Consolidated Financial Statements.
PRODUCTS AND SERVICES
The Company recycles aluminum and delivers the recycled metal to customers as
ingot or molten aluminum. The Company's customers include most of the major
United States aluminum producers, aluminum diecasters, extruders, and other
processors of aluminum products. A principal element of the Company's
strategic plan calls for entering into new markets, specifically the expanding
aluminum automotive market. In 1995, the Company entered this market with the
acquisition of Metal Mark. In 1996, the Company commenced construction of the
Coldwater, Michigan plant, which will also serve this market.
In addition, the Company plans to increase its emphasis on seeking foreign
locales for its recycling facilities where market conditions warrant. General
political and economic conditions in these countries could affect the overall
financial prospects of the Company. Foreign operations are generally subject
to several risks, including foreign currency exchange rate fluctuations,
strict environmental regulations, changes in the methods and amounts of
taxation, foreign exchange controls and government restrictions on the
repatriation of hard currency.
The Company recycles magnesium dross for primary magnesium producers. It also
produces a line of magnesium anodes that are recycled from post-consumer scrap
and sold to end users and independent distributors for corrosion protection of
steel structures.
The Company believes that its Interamerican Zinc, Inc. subsidiary ("IZI") is
the largest recycler of hot-dip zinc dross for continuous galvanizers in the
U.S. IZI's principal customers during 1996 consisted of most of the major
U.S. steel companies.
IMCO's Rock Creek subsidiary manufactures a variety of aluminum products and
manufactures products that are eventually used as metallurgical additions in
the steel making process such as slag conditioners, deoxidizers, steel
desulfurizers and hot topping compounds. Rock Creek utilizes milling,
shredding, blending, testing and packaging equipment to process various types
of raw materials including aluminum dross and scrap, various minerals and
slags. In addition, Rock Creek manufactures a wide range of proprietary
briquetted products and offers toll briquetting services.
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THE RECYCLING PROCESS
The raw material received for aluminum processing is loaded into furnaces
where natural gas heat is applied along with a flux mixture (salt and potash).
Some of the Company's aluminum facilities operate rotary furnaces of a unique
design (which are somewhat more flexible than reverberatory furnaces) which
can process UBCs, dross and various types of aluminum scrap. The Company
believes that these rotary furnaces are more efficient and cleaner than, and
provide rates of recovery superior to, conventional rotary furnaces.
The Loudon, Bedford and Metal Mark facilities operate conventional rotary
furnaces which are somewhat larger than the Company's rotary furnaces. The
Bedford facility's rotary furnace is unique in that it also features automated
material charging mechanisms.
Materials are melted in the furnaces, and the recovered metal is poured
directly into an ingot mold or hot metal crucible for delivery to customers.
Magnesium is recycled by the same method in a rotary furnace at the Sapulpa,
Oklahoma plant. Some of the Company's plants deliver molten aluminum in
crucibles directly to their customers' manufacturing facilities. The molten
aluminum is poured directly into the customer's furnace, saving the customer
the time and expense of remelting aluminum ingot. The Company normally
charges an additional fee for transportation and handling of molten aluminum.
The Sapulpa and Metal Mark plants are restricted, due to the geographical
locations of their customers, to delivering the aluminum in ingot form.
The Company's principal type of aluminum and magnesium rotary furnace was
developed by a former shareholder of International Metal Co. The Company has
a nonexclusive right to use this furnace, subject only to the Company's
maintaining the confidentiality of the furnace design. There can be no
assurances that others will not purchase or develop similar furnaces, that the
process will not be transferred to or obtained by others, or that other metal
producers will not develop a similar metal recovery process.
The aluminum recycling process from the Company's rotary furnaces produces a
by-product called "salt cake," which is formed from the contaminants and
coatings on aluminum scrap and dross and the salts added during the aluminum
recycling process. (The by-product of the reverberatory furnaces is dross.)
Salt cake is composed of salts, metallic aluminum, aluminum oxide and small
amounts of other materials.
The Company disposes of its salt cake and certain airborne contaminants
("baghouse dust") in landfills with cells dedicated for use exclusively by
the Company or that separately encapsulate the Company's material. Salt cake
is not currently listed as a "hazardous waste" under the Resource Conservation
and Recovery Act of 1976 ("RCRA") or as a "hazardous substance" under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). The Company has built and operates a lined landfill at its
Morgantown facility meeting RCRA Subchapter "C" hazardous waste standards.
In 1996, the Company completed the construction of a facility adjacent to its
Morgantown plant to further process the salt cake through the use of materials
separation technology and extract additional aluminum that is left after the
melting process. This salt cake processing facility is the first step needed
for closed loop recycling. The process involves crushing the salt cake and
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separating the aluminum contained therein. The residual product is then
landfilled in the Company's Morgantown landfill. See "ENVIRONMENTAL MATTERS."
The IMSAMET Arizona facility processes aluminum scrap and turnings and
recycles concentrates from purchased dross and salt cake that are first
treated in the facility's patented wet milling process, which reduces the
volume of material handled, thus allowing for more efficient utilization of
capacity. Aluminum oxide, a by-product of the wet milling process, is further
treated and sold for use in production of Portland cement.
Located near the Bonneville Salt Flats, the IMSAMET Utah facility processes
aluminum concentrates from the adjacent 50% owned joint venture, Solar
Aluminum Technology Services ("SALTS"), and produces ingot. SALTS recycles
salt cake from the IMSAMET Idaho and Utah plants into aluminum concentrates,
aluminum oxide and salt brine. The clear brine is delivered to the venture's
partner, Reilly Industries, where its chemical content is recycled for
multiple uses, including reuse as a flux.
In IZI's zinc recycling process, dross is first melted in an electric
induction furnace and then transferred to a reactor which removes the
impurities (iron and zinc oxide, which are sold as a by-product). The
remaining molten zinc is poured into a reverberatory holding furnace from
which it is blended and cast into ingots which are returned to the customer.
IZI holds patent rights to its process in the United States and 13 other
countries.
OPERATIONS
In its aluminum tolling operations, the Company accepts UBCs, dross and scrap
owned by its customers and processes this material for a tolling charge per
pound of incoming weight. In order to retain control of their metal supplies,
customers have typically desired to toll, rather than sell, their scrap
materials. Tolling requires no metal inventory to be purchased or held by the
Company. In addition, tolling does not expose the Company to the risk of
fluctuating metal prices since the Company does not own the material being
processed. The Metal Mark acquisition has changed the Company's historical
ratio of tolling to buy/sell business. Only about 50% of Metal Mark's business
has traditionally involved tolling; the remainder is buy/sell business. See
ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
When purchasing metals in the open market for its buy/sell business, the
Company attempts to reduce the risk of fluctuating metal prices by arranging
for the sale of the aluminum anticipated to be recovered and by avoiding large
inventories of ingot or scrap material except to the extent necessary to allow
its plants to operate without interruption.
Rock Creek processes a wide variety of materials--see "PRODUCTS AND SERVICES."
SALES AND MARKETING
The Company's principal customers (see "GENERAL" above) use recycled aluminum
to produce can sheet, building, automotive and other products. The Company
provides products
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and services to a number of primary and fabricating facilities of
Alcoa. During 1996, 1995 and 1994, Alcoa accounted for approximately 13%, 23%
and 30%, respectively, of revenues. Commonwealth accounted for approximately
8%, 9% and 12% of revenues in 1996, 1995 and 1994, respectively. The loss of
either Alcoa or Commonwealth as customers would have a material adverse effect
upon the business of the Company and its future operating results.
Agreements with customers in the recycling industry have customarily been
short-term agreements. These usually result from a bidding process where
aluminum producers and metal traders offer to sell materials or to have
materials tolled. Consequently, the Company historically has maintained no
significant backlog of orders. However, the Company has secured some longer
term commitments for its recycling services with Alcoa, Commonwealth, Alchem
and Ravenswood.
In 1992, the Company was successful in obtaining a 10 year contract with
Commonwealth to process all of Commonwealth's scrap aluminum, UBCs and dross
at the Company's Uhrichsville plant. See ITEM 2. "PROPERTIES--ALUMINUM
RECYCLING" below. In early 1994, the Company entered into a three-year
processing agreement with Alcoa whereby the Company's Rockwood plant provides
secondary metal for its Alcoa, Tennessee facility. This agreement was
modified in 1995 to reflect greater volumes and to include the Company's
Loudon plant as an approved supplier under the terms of the contract. This
agreement will extend for additional one year terms at the end of each
contract year unless terminated by either party. If terminated by either
party, the agreement will continue in effect until the second anniversary date
of the last day of the contract year during which the termination notice was
given. The agreement obligates the Company to indemnify Alcoa for certain
environmental liabilities which Alcoa may incur in connection with the
transactions contemplated by the agreement.
These agreements contain escalation provisions which are intended to cover
increases in certain of the Company's processing costs. The Company may seek
similar dedicated long-term arrangements with customers in the future.
Increased emphasis on dedicated facilities to customers and dedicated
contracts with customers carries the inherent risk of increased dependence on
a single or few customers with respect to a particular Company facility. In
such cases, the loss of such a customer could have a material adverse affect
on the Company's financial condition and results of operation, and any timely
replacement of volumes attributable to such a customer could prove difficult.
The primary metals industry and the metals recycling industry are subject to
cyclical fluctuations, depending upon the availability and price of
unprocessed scrap metal and demand in the metal consuming industries.
Temporary reductions in can stock production by one of the Company's customers
have previously affected the Company's revenues. See ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
COMPETITION
The aluminum recycling industry is fragmented and highly competitive. The
Company believes that its position as the largest U.S. recycler of secondary
aluminum is a positive competitive factor. The principal factors of
competition in the industry are price, recovery rates, environmental and
safety regulatory compliance, and services (e.g., the ability to deliver
molten
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aluminum). Freight costs also limit the geographic areas in which the Company
can effectively compete.
The major aluminum producers, some of which are the Company's largest
customers, have generally discontinued processing dross, instead focusing
their resources on other aspects of aluminum production. UBCs and other scrap
are processed by both the secondary recycling industry and the major
producers. The Company competes with both other secondary recyclers and their
customers when purchasing and processing scrap for the buy/sell business.
The amount of the Company's tolling business can also vary depending upon the
extent that the major aluminum producers' used metal materials are internally
recycled. The aluminum producers generally vary their rate of internal
recycling depending upon furnace availability, inventory levels, the price of
aluminum, and their own internal demand for metal. The major aluminum
producers are larger and have greater financial resources than the Company. A
decision by these producers to expand their recycling operations could reduce
demand for certain of the Company's products and services.
SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY
The Company has historically not had, and does not anticipate having,
difficulties in obtaining raw materials for its operations. In the case of
buy/sell business, the primary sources of aluminum and magnesium for recycling
are dross and scrap, which are purchased from both the major aluminum
producers and metal traders.
Prior to 1996, fluctuations in market prices for both aluminum and magnesium
had not significantly affected the availability of these metals to the
Company. However, during 1996, the Company had difficulty obtaining
significant quantities of UBC's to operate at a profitable level at its
Corona, California and Bedford, Indiana facilities, as these plants were
designed to process solely UBC material. As a result, management decided to
close the Corona facility. At the Bedford facility, the Company is presently
modifying one of the existing furnaces and installing an additional furnace
which will enable it to process a greater variety of aluminum scrap in the
future.
The availability of zinc dross is dependent upon the demand for galvanized
steel, which has historically paralleled fluctuations in customer demand in
the automotive, appliance and construction industries.
The Company's operations are fueled by natural gas, which represents the
second largest component of operating costs. In an effort to acquire the most
favorable natural gas costs, the Company has, at times, secured long-term
commitments for its natural gas requirements. Occasionally, when deemed
necessary, the Company purchases its natural gas on a spot-market basis. All
of the Company's long-term contracts with its customers contain natural gas
price escalators. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." The Company understands that
most of its competitors' operations also are fueled by natural gas; therefore,
it believes that increases in the prices for natural gas do not adversely
affect the Company's competitive position. The Company believes it will
continue to have access to adequate energy supplies to meet its needs for the
foreseeable future.
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SEASONALITY
UBC collections have historically been highest in the summer months and lower
in the winter months. Therefore, the Company has at times experienced lower
volumes during the winter. In recent years, however, the Company's
processing volumes have fluctuated mostly due to its startup of additional
capacity rather than the seasonality of UBC collections.
TRANSPORTATION
The Company receives UBCs, dross and scrap, and ships its recycled metal by
both rail and truck. Most of the Company's plants own their own rail siding
or have access to rail lines nearby. The Company owns and leases various
trucks and trailers to support its business. Customarily, the transportation
costs of scrap materials to be tolled are paid by the customer, while the
transportation costs of aluminum and magnesium purchased and sold by the
Company may be paid either by the customer or the Company. The Company
contracts with third-party transportation firms for hauling some of its solid
waste for disposal.
EMPLOYEES
As of December 31, 1996, the Company had 917 employees, consisting of 204
employees engaged in administrative and supervisory activities and 713
employees engaged in production and maintenance. The production and
maintenance employees at the Rockwood plant are represented by the United
Steelworkers of America under a five-year collective bargaining agreement
that expires in August 2000. The production and maintenance workers at the
Uhrichsville plant are represented by the United Mine Workers of America.
This contract expires on November 30, 1998. The production and maintenance
workers at the Bedford plant are represented by the International Brotherhood
of Electrical Workers. This agreement expires in April 1997. The production
and maintenance workers at the Sikeston plant are also represented by the
United Steelworkers of America union under an agreement which expires in
March 1997. Labor relations with employees have been satisfactory.
ENVIRONMENTAL MATTERS
The processing of UBCs, dross and scrap generates solid waste in the form of
salt cake and baghouse dust. At the Sapulpa and Morgantown plants, the
Company disposes of its solid waste at its own permitted disposal sites. The
Rockwood, Loudon and Bedford plants currently dispose of the majority of
their solid waste by transporting it to the Morgantown plant where the
Company, in 1996, began operating a salt cake processing facility which
prepares salt cake for landfilling. See ITEM 2. "PROPERTIES - SOLID WASTE
DISPOSAL". Under the Company's supply agreement with Commonwealth, the
disposal of all salt cake generated by the Company as a result of its
processing for Commonwealth is the responsibility of Commonwealth. Salt cake
from all other material processed at the Uhrichsville plant is either shipped
to the Morgantown plant for disposal or landfilled with a local solid waste
management
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firm. In 1996, the Chicago Heights and Sikeston plants disposed of the
majority of their salt cake with third party landfills; however, a portion of
their salt cake was shipped to Morgantown.
If salt cake were ever classified as a hazardous waste or substance under
RCRA or CERCLA, the Company's handling and disposal of salt cake would be
required to be modified. To dispose of its salt cake, the Company may then
be required to take other actions including obtaining a RCRA Subchapter "C"
permit for its Morgantown landfill, obtaining other permits (including
transportation permits), and consider landfilling additional amounts of salt
cake with third parties not under the Company's direct control. Based on
current annual processing volumes and remaining landfill capacity, the
estimated remaining life of the landfill at the Sapulpa plant is four years.
The Company recently built additional landfill space at its Morgantown plant
and estimates its remaining useful life (not including future designed
expansion capacity) to be approximately 2 years. Landfill closure costs for
the Company-owned landfills are currently estimated to exceed $4,000,000.
The Company is currently providing for this expenditure by accruing, on a
current basis, these estimated costs as the landfills are used. See ITEM 2.
"PROPERTIES."
In recent years, the Company's operations, like those of other basic
industries, have become subject to stringent legislation and regulations
regarding the protection of human health and the environment. It can be
anticipated that more rigorous laws and regulations will be enacted that
could require the Company to make substantial expenditures in addition to
those referred to herein.
The Clean Air Act provides for federal, state and local regulation of the
emission of air pollutants. As a result of the Clean Air Act amendments in
1990, the Company may have to obtain additional permits, install additional
pollution control equipment and otherwise incur additional capital
expenditures. The Company does not currently believe that foreseeable costs
of compliance will have a material adverse effect on the Company's financial
position.
The Company believes that it is in material compliance with applicable
environmental regulations. Due to relatively high costs and limited
coverage, the Company does not carry environmental impairment liability
insurance. The Company made capital expenditures for environmental control
facilities of approximately $3,800,000 in 1996, most of which was for
landfill capacity additions. Estimated environmental expenditures for 1997
and 1998 are approximately $4,700,000 and $4,900,000, respectively.
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EXECUTIVE OFFICERS
The executive officers of the Company are listed below, together with brief
accounts of their experience and certain other information. Executive
officers are appointed by the Board of Directors.
NAME AGE POSITION
- ---- --- --------
Don V. Ingram 61 Chairman of the Board and Chief Executive Officer
Richard L. Kerr 54 President and Chief Operating Officer
Paul V. Dufour 57 Executive Vice President - Finance and Administration,
Chief Financial Officer and Secretary
Thomas W. Rogers 50 Senior Vice President, Sales and Marketing
C. Lee Newton 53 Senior Vice President, Operations
Don V. Ingram was appointed Chief Executive Officer effective February 7,
1997. He has served as a director since 1988 and as Chairman of the Board
since 1994. He served as acting Chief Executive Officer of the Company from
August to December 1994. Mr. Ingram played a major role in the Corporation's
formation in 1986.
Richard L. Kerr was promoted to President of the Company on February 7,
1997. Previously, he served as Executive Vice President since July 1988 and
has been Chief Operating Officer since 1991. In 1994, he became President of
the Company's Metals Division. Mr. Kerr joined International Metal Co. in
April 1984, and became Executive Vice President of International Metal Co. in
April 1987.
Paul V. Dufour has served as Vice President, Chief Financial Officer and
Secretary of the Company since March 1987. He was promoted to Senior Vice
President in May 1988 and to Executive Vice President in October 1994. He is
principally responsible for the Company's financial and administrative
functions.
Thomas W. Rogers has served as Senior Vice President of the Company since
July 1988. Mr. Rogers was employed as Plant Manager of the Sapulpa, Oklahoma
plant in October 1986 and became Senior Vice President of International Metal
Co. in April 1987.
C. Lee Newton was promoted to Senior Vice President of the Company in 1993.
Mr. Newton was named Vice President in 1990 and was the General Manager of
the Morgantown, Kentucky plant from 1989 to 1993. He was originally employed
by the Company as Plant Manager of its Rockwood, Tennessee plant in 1987.
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ITEM 2. PROPERTIES
ALUMINUM RECYCLING
During 1996, the Company owned and/or operated the following processing
plants as detailed below:
<TABLE>
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ESTIMATED
NUMBER ANNUAL MOLTEN
OWNED OF CAPACITY YEAR YEAR MATERIALS DELIVERY
PLANT ACREAGE FURNACES (MILLION LBS) BUILT ACQUIRED PROCESSED CAPABILITY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alum,
Sapulpa, OK. 64 7 185 1962 -- Mag. No
- --------------------------------------------------------------------------------------------------------
Rockwood, TN. 238 6 200 1985 -- Alum Yes
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Morgantown, KY. 552 (a) 6 200 1989 -- Alum Yes
- --------------------------------------------------------------------------------------------------------
Uhrichsville, OH. 42 10 335 1992 -- Alum Yes
- --------------------------------------------------------------------------------------------------------
Corona, CA. (b) 20 3 100 (b) -- 1993 Alum No
- --------------------------------------------------------------------------------------------------------
Loudon, TN. 173 3 180 -- 1994 Alum Yes
- --------------------------------------------------------------------------------------------------------
Bedford, IN. 19 2 150 -- 1995 Alum Yes
- --------------------------------------------------------------------------------------------------------
Chicago Hts., IL. 9 2 100 -- 1995 Alum No
- --------------------------------------------------------------------------------------------------------
Sikeston, MO. 31 3 60 -- 1995 Alum No
- --------------------------------------------------------------------------------------------------------
Morgantown, KY. (a) -- 400 1996 -- Salt Cake No
- --------------------------------------------------------------------------------------------------------
Adrian, MI. (c) 2 40 -- 1992 Zinc No
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(a) Acreage includes both the aluminum and salt cake processing facilities in
Morgantown, KY.
(b) The Corona plant was closed during 1996. See ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
(c) The 50,000 sq. ft. Adrian facility is leased by IZI. This lease, which
includes both the operations and office space, expires in September 1997.
This facility will be relocated to a company owned site adjacent to the new
Coldwater, Michigan facility in August 1997.
The Company also owns 50% of a recycling facility located in East Chicago,
Indiana. This facility has annual capacity to process 80 million pounds of
aluminum.
Commonwealth has an option to acquire up to a 49% equity interest in the
Uhrichsville plant at a price equal to that equity percentage multiplied by
the depreciated book value of the plant, or the subsidiary owning the plant,
plus a premium to compensate the Company for its recycling technology. The
option price may be above or below the fair value of the Uhrichsville plant.
Should Commonwealth exercise its option, there can be no assurance that the
production or earnings attributable to the purchased interest could be
replaced, and the Company's net earnings and cash flow could be adversely
affected.
In 1996, the Company began its 50% participation in its VAW-IMCO Gu-beta ray-
und Recycling GmbH joint venture in Germany. The venture owns and operates
two recycling and foundry alloy
13
<PAGE>
facilities located at Grevenbroich and T ging, Germany. Annual capacity for
these two plants is approximately 280 million pounds.
In the first quarter of 1997, the Company began operation of a new aluminum
recycling facility in Coldwater, Michigan. This facility is 75% owned by the
Company and 25% owned by the plant's largest customer, Alchem. The facility,
when fully completed, will have three furnaces with rated annual capacity of
150 million pounds and will primarily serve the automotive market. The
Company will be the operator of the facility and will deliver molten aluminum
to its customer-partner. Alchem will have certain rights to purchase
additional equity interests not to exceed 40% of the total joint venture
equity if the facility is expanded or if Alchem increases its supply
commitments.
In 1996, the Company announced plans to construct an aluminum recycling
facility in Swansea, Wales, U.K. called IMCO Recycling (UK) Ltd. ("Wales").
Construction of the Wales facility is expected to be complete in 1997. The
facility will have 2 furnaces and will have a rated annual capacity of 100
million pounds.
In January 1997, the Company acquired 6 additional facilities in Ohio, Idaho,
Utah, and Arizona. See ITEM 1. "BUSINESS--RECENT DEVELOPMENTS."
During 1996, the Rockwood, Morgantown, Uhrichsville and Chicago Heights
plants all operated at rates in excess of their stated capacities.
SOLID WASTE DISPOSAL
The Company completed a new landfill cell adjacent to its plant in
Morgantown, Kentucky in 1996. All of the waste generated from the new salt
cake processing facility at the Morgantown site is deposited in this
landfill. Management anticipates that this new landfill cell, which is
designed to be expanded several times throughout its life, will serve the
Company's landfilling needs for the majority of the salt cake generated by
facilities currently owned by the Company in the United States. The Company
also owns a landfill at its Sapulpa plant which is estimated to have four
years useful life remaining. See ITEM 1. "BUSINESS--ENVIRONMENTAL MATTERS."
The IMSAMET Arizona facility recycles its own salt cake and sells the
by-products to third parties, and the Utah and Idaho facilities ship their
salt cake to the 50% owned SALTS joint venture for further processing. See
ITEM 1. "BUSINESS--THE RECYCLING PROCESS."
ADMINISTRATIVE
In Irving, Texas, the Company leases approximately 21,700 square feet of
office space for certain of its executive, financial and management
functions. This lease expires in January 2000.
The Company believes that its plants and equipment are maintained in good
operating condition. Substantially all of the properties and equipment at
the Company's plants are mortgaged to secure senior indebtedness. See NOTE
F--LONG TERM DEBT AND CREDIT LINES and NOTE K--SUBSEQUENT EVENTS of Notes to
Consolidated Financial Statements.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings against
the Company or its operations. The Company is a party from time to time to
what it believes are routine litigation and proceedings considered part of
the ordinary course of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the quarter ended December 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The New York Stock Exchange (trading
symbol: IMR). The following table sets forth, for the fiscal quarters
indicated, the high and low sales prices for the Company's Common Stock, as
reported on The New York Stock Exchange composite tape from January 1, 1995
through December 31, 1996, and the dividends declared per share during the
periods indicated.
------------------------------------------------------
DIVIDENDS
HIGH LOW DECLARED
------------------------------------------------------
Calendar Year 1996
------------------------------------------------------
First Quarter $24 5/8 $18 1/2 $ 0.05
------------------------------------------------------
Second Quarter 24 3/8 17 5/8 0.05
------------------------------------------------------
Third Quarter 18 1/4 15 0.05
------------------------------------------------------
Fourth Quarter 17 3/4 14 3/8 0.05
------------------------------------------------------
------------------------------------------------------
Calendar Year 1995
------------------------------------------------------
First Quarter $16 3/8 $13 3/8 $ --
------------------------------------------------------
Second Quarter 19 1/4 15 1/4 0.035
------------------------------------------------------
Third Quarter 23 3/4 17 7/8 0.035
------------------------------------------------------
Fourth Quarter 24 1/2 20 1/2 0.035
------------------------------------------------------
In late 1994, the Board of Directors declared a special year-end $0.10 per
share cash dividend, payable on January 26, 1995 to holders of record of
Common Stock as of December 29, 1994. This was the first dividend declared
by the Company. The Company subsequently commenced paying a quarterly
dividend and in 1996 paid a quarterly dividend of $.05 per share for a total
of $.20 per share. Dividends as may be determined by the Board of Directors
may be declared and paid on the Common Stock from time to time out of any
funds legally available therefor. The Company's long-term debt instruments
limit the amount of cash dividends the Company can
15
<PAGE>
pay. The annual limitations are as follows: $3.5 million for 1997 and 1998,
$4.0 million for 1999 and 2000 and $6.0 million after the year 2000. The
Company intends to continue paying dividends on its Common Stock, although
future dividend declarations are at the discretion of the Company's Board of
Directors and will depend upon the Company's level of earnings, cash flow,
financial requirements, economic and business conditions and other relevant
factors, including the restrictions contained in the Company's long-term debt
instruments. See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" and NOTE F--LONG TERM DEBT AND CREDIT
LINES of Notes to the Consolidated Financial Statements.
On March 14, 1997, the outstanding shares of Common Stock were held of record
by 556 stockholders.
During the fourth quarter of 1996, the Company made no unregistered sales of
its securities. However, in January 1997, the Company acquired all of the
outstanding common stock of Rock Creek Aluminum, Inc. in exchange for 618,137
shares of the Company's common stock. The value of the shares of the common
stock issued in this transaction was approximately $9,500,000. See ITEM 1.
"BUSINESS--RECENT DEVELOPTMENTS."
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
- --------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $210,871 $141,167 $101,116 $74,216 $60,223
- --------------------------------------------------------------------------------------------------
Net Earnings 6,720 12,470 8,471 8,022 7,475
- --------------------------------------------------------------------------------------------------
Net Earnings per Common Share 0.55 1.03 0.73 0.70 0.67
- --------------------------------------------------------------------------------------------------
Total Assets 164,707 139,877 96,791 79,427 68,871
- --------------------------------------------------------------------------------------------------
Long-term Debt (Excluding Current Maturities) 48,202 29,754 11,860 8,000 10,500
- --------------------------------------------------------------------------------------------------
Dividends Declared per Common Share 0.200 0.105 0.100 -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
See ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" and Notes to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Most of the Company's processing consists of aluminum, magnesium and zinc
tolled for its customers. To a lesser extent, the Company also purchases
scrap metal and dross for processing and resale. Both the Company's tolling
fees and the selling price of metal it buys, recycles and sells for its own
account are included in sales revenue. Accordingly, tolling business
produces a
16
<PAGE>
lower amount of revenues and cost of sales than does the buy/sell business.
Variations in the mix of these two businesses can cause revenues to change
significantly from period to period while not significantly affecting gross
profit, because both types of transactions generally have the same gross
profit per pound of metal processed. As a result, the Company considers
processing volume to be a more important determinant of performance than
revenues.
During the 1990's, aluminum inventories on the worldwide commodity exchanges
fluctuated from severe excesses to relatively balanced positions. In times
of excess, aluminum prices dropped, negatively impacting the profitability of
the major aluminum producers who are some of the Company's largest customers.
This environment of low profitability for the Company's customers has made
it difficult to pass cost increases through to these customers. In early
1994, worldwide inventories began falling for a number of reasons, including
an increase in demand for aluminum, particularly in the United States, and
prices for aluminum began to rise. During 1995, worldwide aluminum prices
declined from their 1994 levels, particularly in the fourth quarter. During
1996, the combination of higher energy and refuse disposal costs and weather
related disruptions, which affected volumes processed, negatively impacted
the Company's results. It is not possible to predict the future price of
aluminum or the level of worldwide inventories of aluminum and whether, or to
what extent, such factors will affect the Company's future business.
The following table shows the total pounds of material processed (aluminum,
magnesium and zinc), the percentage of total pounds processed represented by
tolled aluminum, purchased aluminum, magnesium and zinc, total revenues,
total gross profits and gross profit percentages:
(In thousands, except percentages)
- ------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Pounds Processed 1,451,408 1,323,282 1,012,600
- ------------------------------------------------------------------------------
Percent of Total Pounds Processed:
- ------------------------------------------------------------------------------
Tolled Aluminum 82% 92% 93%
- ------------------------------------------------------------------------------
Purchased Aluminum 15% 5% 3%
- ------------------------------------------------------------------------------
Magnesium * * 1%
- ------------------------------------------------------------------------------
Zinc 3% 3% 3%
- ------------------------------------------------------------------------------
Revenues $ 210,871 $ 141,167 $ 101,116
- ------------------------------------------------------------------------------
Gross Profit $ 25,538 $ 30,939 $ 22,638
- ------------------------------------------------------------------------------
Gross Profit % ** 12.1% 21.9% 22.4%
- ------------------------------------------------------------------------------
* Less than 1 percent.
** See NOTE I-OPERATIONS of Notes to the Consolidated Financial Statements
and RESULTS OF OPERATIONS--Fiscal Year 1996 vs. Fiscal Year 1995 below.
17
<PAGE>
RESULTS OF OPERATIONS
FISCAL YEAR 1996 VS. FISCAL YEAR 1995
The Company processed 1.45 billion pounds of metal in 1996 which represented
an increase of 10% over the 1.32 billion pounds processed in 1995. Increases
from the Bedford and Metal Mark plants acquired late in 1995 accounted for
the majority of the increase in production. Revenues in 1996 were
$210,871,000 which represented an increase of 49% over 1995's revenue of
$141,167,000. The percentage increase in revenues was greater than the
relative increase in volumes processed because the amount of buy/sell
business was greater in 1996 compared to 1995, principally as a result of the
Metal Mark acquisition in October 1995. The Company's increased buy/sell
business was principally attributed to the acquisition of the Metal Mark
facilities, which have historically maintained an approximate one-to-one
ratio of tolling to buy/sell business. As discussed above, this causes the
Company's increases in revenues to outpace its relative increases in
processing volumes.
Gross profit of $25,538,000 was 17% below the $30,939,000 reported in 1995.
During the third quarter of 1996, the Company recorded charges in cost of
sales totaling $4,177,000, resulting from management decisions to shut down
the Company's Corona, California recycling facility and to accelerate the
closure of the first cell of the Company's landfill in Morgantown, Kentucky.
The California facility had operated far below its capacity and had recorded
losses throughout 1996. As of September 1996, year-to-date processing was
50% lower than in the comparable period of 1995, and third quarter volumes
were 62% below last year's total. While operating efficiency had improved,
demand for aluminum from the Far East, the plant's largest market, had
virtually disappeared.
Before these third quarter charges to cost of sales, 1996's gross profit of
$29,715,000 was 4% lower than 1995's gross profit. The decline in gross
profit was due to higher energy and refuse disposal costs and because the
Corona and Bedford plants experienced lower operating rates than anticipated.
In addition, gross profit was negatively impacted by the declining market
prices for aluminum during 1996. As discussed above, the Company currently
has more buy/sell pounds in its product mix, and declining aluminum prices
tend to decrease the level of revenues and gross profit the Company receives
for the metal it owns, processes and sells.
Selling, general and administrative costs increased 17% to $11,774,000
compared to the $10,027,000 reported in 1995. This increase occurred because
of the addition of key personnel required to manage the Company's accelerated
growth and because of selling, general and administrative costs associated
with recent acquisitions.
Interest expense in 1996 of $3,421,000 more than tripled 1995's interest
expense of $1,073,000. The increase was the result of additional long-term
debt outstanding during 1996 which was used to fund the fourth quarter 1995
acquisitions of the Metal Mark and Bedford facilities, the first quarter 1996
investment in VAW-IMCO and the 1996 construction of the new Coldwater,
Michigan facility. Interest income rose to $623,000 compared to $424,000 in
1995. This increase was due to higher average balances of invested cash
during 1996.
The Company's income before income taxes of $10,852,000 fell 47% compared to
$20,363,000 in 1995. As discussed above, approximately 44% of this decline
was due to the third quarter charges to cost of sales totaling $4,177,000,
resulting from management decisions to shut down
18
<PAGE>
the Company's Corona, California facility and to accelerate the closure of
the first cell of the Company's landfill in Morgantown, Kentucky. Excluding
these items, 1996's net income before income taxes would have been $15,029,000,
or 26% lower than 1995's net income before income taxes. This 26% decline in
net income before income taxes was greater than the 4% decline in gross
profit (excluding the third quarter charges to cost of sales) due to higher
selling, general and administrative costs and higher interest expense in
connection with the Metal Mark and Bedford acquisitions.
The Company's lower income before tax caused the tax expense to fall to
$4,132,000 compared to $7,893,000 in 1995. The effective tax rate was
approximately 38% in 1996 compared to 39% in 1995.
FISCAL YEAR 1995 vs. FISCAL YEAR 1994
The Company processed 1.3 billion pounds of metal in 1995 which represented
an increase of 31% over the 1.0 billion pounds processed in 1994. Increases
from the Bedford and Metal Mark plants acquired late in 1995, and the Loudon
plant which was acquired in September of 1994 and expanded in 1995, along
with increased volume from all plant locations, accounted for the favorable
variances. Revenues in 1995 were $141,167,000 which represented an increase
of 40% over 1994's revenue of $101,116,000. The percentage increase in
revenues was greater than the increase in volumes processed because the
amount of buy/sell business was greater in 1995 compared to 1994.
Gross profit of $30,939,000 was 37% above the $22,638,000 reported in 1995.
Most of this resulted from the increased pounds processed during 1995.
Selling, general and administrative costs increased 56% to $10,027,000
compared to the $6,440,000 reported in 1994. This increase occurred because
of the addition of key personnel required to manage the Company's rapid
growth and because of selling, general and administrative costs associated
with acquisitions carried out during the year.
Interest expense was about the same in 1995 as it was in 1994, while interest
income rose to $424,000 compared to $154,000 in 1994. This increase was due
to higher average balances invested in cash.
The Company's income before taxes of $20,363,000 rose 49% compared to 1994.
In 1994 the Company recorded nonrecurring litigation expense related to a
lawsuit which reduced 1994's income before taxes by $1,635,000. Excluding
this item, 1995's increase would have been approximately 33% or very similar
to the increases recorded in volume processed and gross profits.
The Company's increased income before tax and higher tax rates caused income
tax expense to rise to $7,893,000 compared to $5,232,000 in 1994. The
effective tax rate was approximately 39% in 1995 compared to 38% in 1994.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operations provided cash of $6,744,000 in 1996, compared with $25,716,000 of
cash provided by operations in 1995. Decreased earnings, along with an
increase in working capital requirements in 1996, were the primary factors
causing the decline in cash provided from operations. Changes in operating
assets and liabilities resulted in a decrease in cash of $15,291,000 in 1996,
compared to an increase in cash of $2,591,000 in 1995. The 1996 decline was
principally the result of increased buy/sell activities which caused an
increase in inventory levels and accounts receivable. At December 31, 1996,
the Company's current ratio increased to 2.58 as compared to December 31,
1995's current ratio of 2.41. The Company's working capital requirements are
expected to increase in 1997 due to an anticipated higher level of buy/sell
business and increased volumes due to the January 1997 acquisitions and the
initial operations at two new plants.
Capital spending, excluding acquisitions, amounted to $16,711,000 in 1996 and
$15,538,000 in 1995. The construction of the new facility in Coldwater,
Michigan was the most significant capital spending project in 1996. Capital
spending in 1995 was primarily for construction of the new salt cake
processing facility and the expansion of the landfill in Morgantown,
Kentucky. In 1996, the Company also invested approximately $14,000,000 in
the VAW-IMCO German joint venture. In 1995, the acquisitions of Bedford and
Metal Mark required $20,137,000.
In September 1995, the Company borrowed $5,000,000, under terms it had
previously negotiated with a commercial lending institution, in order to take
advantage of expansion opportunities and to acquire the Bedford and Metal
Mark facilities. This Variable Rate Converting Revolving Loan interest rate
as of December 31, 1996 was 6.75%. In addition, in November 1995, the
Company borrowed $15,000,000 of unsecured debt, representing half of the
commitment the Company received from a private placement of notes. The
remaining $15,000,000 of notes were issued on April 1, 1996 with the proceeds
primarily used to fund the Company's investment in the VAW-IMCO joint
venture. The notes issued in 1995 and 1996 had fixed annual interest rates
of 7.28% and 7.41%, respectively. Both of these notes were paid in full in
January 1997 with funds from a new credit agreement described below.
In 1995, the Company increased its borrowing limit to $10,000,000 under a
restated revolving credit facility (the "Revolving Facility"). On May 31,
1996, the Company further increased its limit to $12,000,000. Under the
Revolving Facility, the Company has a subfacility for the issuance of standby
letters of credit. To meet working capital needs, on December 30, 1996, the
Company drew $2,000,000 under this Revolving Facility at an interest rate of
8.25%. This note was subsequently repaid in January 1997. See NOTE F--LONG
TERM DEBT AND CREDIT LINES and NOTE J--SUBSEQUENT EVENTS of Notes to the
Consolidated Financial Statements.
On May 8, 1996, in conjunction with the construction of the Morgantown,
Kentucky salt cake processing plant, the Company received the proceeds of a
$5,740,000 City of Morgantown revenue bond issuance. The bonds mature on
May 1, 2016 and carry an interest rate of 7.65%. The bonds were issued at a
1% discount which will be amortized over the life of the loan.
In connection with acquisitions of IMSAMET and Rock Creek in January 1997,
the Company entered into a $125,000,000 credit agreement ("Credit Agreement")
with certain lenders. The Credit Agreement is comprised of a $105,000,000
term loan and a $20,000,000 revolving credit
20
<PAGE>
agreement. Of the $20,000,000 revolving credit agreement, $4,000,000 is to
be used, as needed, by the Company for standby letters of credit. As of
January 31, 1997, the Company had approximately $1,800,000 standby letters of
credit outstanding. The Company received $110,000,000 at the closing and used
approximately $61,000,000 for the acquisitions of IMSAMET and Rock Creek.
The remaining $49,000,000 of the proceeds was used to retire substantially
all of the Company's outstanding debt as of December 31, 1996. The new Credit
Agreement limits the amount of cash dividends the Company can pay. The
annual limitations are as follows: $3,500,000 for 1997 and 1998, $4,000,000
for 1999 and 2000 and $6,000,000 after the year 2000. The early debt
retirement generated a loss of approximately $1,318,000 (net of income taxes)
and will be reported as an extraordinary item in the first quarter of 1997.
See NOTE F--LONG TERM DEBT AND CREDIT LINES and NOTE J--SUBSEQUENT EVENTS of
Notes to the Consolidated Financial Statements.
Capital expenditures for property, plant and equipment in 1997 are currently
estimated to total approximately $35,000,000. The significant 1997 capital
spending projects are the construction of the Wales facility, completion of
the Coldwater, Michigan facility, relocation of the zinc recycling facility,
and the expansion of the Kentucky landfill. The Company believes that its
cash on hand, the resources available under the terms of the Credit Agreement
and anticipated 1997 cash provided by operations should provide the financial
resources necessary to fund its capital requirements and to meet its
obligations in 1997 and for the foreseeable future.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained herein in ITEM 1.-- "BUSINESS" and in ITEM 7.
- --"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" may be deemed to be forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995 and are
subject to the "Safe Harbor" provision in that enacted legislation. These
statements are based on current expectations and involve a number of risks
and uncertainties. Actual results could differ materially from those
described in the forward-looking statements as a result of various factors
including, but not limited to the following: expectations of operating
levels at the Company's facilities, expectations of the future mix of
buy/sell business as opposed to tolling business, retention of major
customers, effects of future costs, the price of aluminum on world markets
and future levels and timing of capital expenditures. Such statements are
qualified by the following:
Estimates of future operating rates at the Company's plants are based on
current expectations by management of the Company of future levels of
volumes and prices for the Company's services or metal, and are subject
to fluctuations in customer demand for the Company's services and
prevailing conditions in the metal markets, as well as certain components
of the Company's cost of operations, including energy costs. Many of the
factors affecting revenues and costs are outside of the control of the
Company, including weather conditions such as those that prevailed in the
first quarter of 1996, and general economic and financial market
conditions. The future mix of buy/sell vs. tolling business is dependent
on customers' needs and overall demand, world and U.S. market conditions
then prevailing in the respective metal markets, and the operating levels
at the Company's various facilities at the relevant time.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
INDEX OF FINANCIAL STATEMENTS OF IMCO RECYCLING INC. AND SUBSIDIARIES
PAGE
----
Report of Ernst & Young LLP, Independent Auditors 23
Consolidated Balance Sheets at December 31, 1996 and 1995 24
Consolidated Statements of Earnings for the three years ended
December 31, 1996 25
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996 26
Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1996 27
Notes to Consolidated Financial Statements 28-39
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have audited the accompanying consolidated balance sheets of IMCO
Recycling Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial position
of IMCO Recycling Inc. and subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 30, 1997
23
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
1996 1995
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,070 $ 8,678
Accounts receivable 33,655 27,442
Inventories 11,847 9,146
Deferred income taxes 1,462 1,298
Other current assets 1,282 1,353
-------- --------
Total Current Assets 53,316 47,917
Property and equipment, net 86,308 78,769
Intangible assets
Excess of acquisition cost over the
fair value of net assets acquired,
net of accumulated amortization
of $4,607 and $3,866 at December 31,
1996 and 1995, respectively. 9,362 10,968
Patents, net 171 233
-------- --------
Total Intangible Assets 9,533 11,201
Investments in joint ventures 14,187 -
Other assets, net 1,363 1,990
-------- --------
$164,707 $139,877
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 14,351 10,691
Accrued liabilities 2,192 7,059
Short-term debt 2,000 -
Current maturities of long-term debt 2,124 2,169
-------- --------
Total Current Liabilities 20,667 19,919
Long-term debt 48,202 29,754
Other long-term liabilities 1,647 1,412
Deferred income taxes 5,856 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; 12,017,914 issued at
December 31, 1996; 11,964,911 issued at
December 31, 1995 1,202 1,196
Additional paid-in capital 27,553 27,282
Retained earnings 61,021 56,672
Treasury stock, at cost; 118,551 shares
at December 31, 1996; 207,972 shares at
December 31, 1995 (1,441) (1,874)
-------- --------
Total Stockholders' Equity 88,335 83,276
-------- --------
$164,707 $139,877
-------- --------
-------- --------
See Notes to Consolidated Financial Statements.
24
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 210,871 $ 141,167 $ 101,116
Cost of sales 185,333 110,228 78,478
----------- ----------- -----------
GROSS PROFIT 25,538 30,939 22,638
Selling, general and administrative expenses 11,774 10,027 6,440
Interest expense 3,421 1,073 1,014
Interest income (623) (424) (154)
Nonrecurring litigation expense - - 1,635
Equity in (earnings) loss of joint ventures 114 (100) -
----------- ----------- -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 10,852 20,363 13,703
Provision for income taxes 4,132 7,893 5,232
----------- ----------- -----------
NET EARNINGS $ 6,720 $ 12,470 $ 8,471
----------- ----------- -----------
----------- ----------- -----------
NET EARNINGS PER COMMON SHARE $ 0.55 $ 1.03 $ 0.73
----------- ----------- -----------
----------- ----------- -----------
Dividends declared per common share $ 0.20 $ 0.105 $ 0.10
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 12,308,904 12,108,216 11,643,846
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 6,720 $ 12,470 $ 8,471
Depreciation and amortization 11,316 9,353 7,367
Provision for deferred income taxes 176 1,167 1,859
Equity in (earnings) loss of joint ventures 114 (100) -
Other noncash charges 132 235 647
Provision for plant closure 3,577 - -
Changes in operating assets and liabilities
(excluding investing and financing transactions):
Accounts receivable (6,282) 3,330 (5,829)
Inventories (3,728) (1,756) 95
Other current assets 72 (546) (121)
Accounts payable and accrued liabilities (4,289) 1,383 553
Accrued landfill closure costs (1,064) 180 572
------- -------- -------
NET CASH FROM OPERATING ACTIVITIES 6,744 25,716 13,614
INVESTING ACTIVITIES
Purchases of property and equipment (16,711) (15,538) (6,646)
Proceeds from sale of property and equipment 204 69 -
Acquisitions of businesses and investments
in joint ventures (13,681) (20,137) (5,325)
Other (157) (800) (997)
------- -------- -------
NET CASH USED BY INVESTING ACTIVITIES (30,345) (36,406) (12,968)
FINANCING ACTIVITIES
Net proceeds from (repayments of)
short-term borrowings 2,000 - (1,800)
Proceeds from issuance of long-term debt 20,517 20,000 5,000
Principal payments of long-term debt (2,162) (1,477) (2,751)
Dividends paid (2,371) (2,371) -
Tax benefit from the exercise of stock options 806 183 -
Other 1,203 179 94
------- -------- -------
NET CASH FROM FINANCING ACTIVITIES 19,993 16,514 543
------- -------- -------
Net increase (decrease) in cash and cash equivalents (3,608) 5,824 1,189
Cash and cash equivalents at January 1 8,678 2,854 1,665
------- -------- -------
Cash and cash equivalents at December 31 $ 5,070 $ 8,678 $ 2,854
------- -------- -------
------- -------- -------
SUPPLEMENTARY INFORMATION
Cash payments for interest $ 3,083 $ 1,357 $ 1,271
Cash payments for income taxes $ 7,440 $ 6,440 $ 3,411
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------ PAID-IN RETAINED --------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 11,501,708 $1,150 $20,059 $38,102 (334,537) $(2,255)
Net earnings - - - 8,471 - -
Cash dividend - - - (1,152) - -
Litigation agreement - - 67 - 25,000 185
Exercise of stock options - - 20 - 19,735 (81)
Purchase of Phoenix Smelting 254,990 26 3,207 - 44,892 333
Tax benefit from the exercise of
nonqualified stock options - - 158 - - -
---------- ------ ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1994 11,756,698 1,176 23,511 45,421 (244,910) (1,818)
Net earnings - - - 12,470 - -
Cash dividend - - - (1,219) - -
Exercise of stock options - - 234 - 36,938 (56)
Purchase of Alumar Associates 208,213 20 3,354 - - -
Tax benefit from the exercise of
nonqualified stock options - - 183 - - -
---------- ------ ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1995 11,964,911 1,196 27,282 56,672 (207,972) (1,874)
Net earnings - - - 6,720 - -
Cash dividend - - - (2,371) - -
Issuance of common stock for
services 3,003 1 51 - - -
Exercise of stock options - - (586) - 89,421 433
Tax benefit from the exercise of
nonqualified stock options - - 806 - - -
Exercise of warrants 50,000 5 - - - -
---------- ------ ------- ------- -------- -------
BALANCE AT DECEMBER 31, 1996 12,017,914 $1,202 $27,553 $61,021 (118,551) $(1,441)
---------- ------ ------- ------- -------- -------
---------- ------ ------- ------- -------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(dollars in tables are in thousands, except per share data)
NOTE A-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION:
The accompanying consolidated 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 upon
consolidation. Investments in affiliated companies, owned 50% or less, are
recorded by the Company on the equity method.
The Company's principal business involves the owning and operating of
aluminum recycling facilities. The Company recycles scrap material for a fee
and returns the material to its customers, some of whom are the world's
largest aluminum companies. The Company also buys scrap on the open market,
recycles and sells it.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount
approximates fair value because of the short maturity of those instruments.
INVENTORIES:
Inventories are stated at the lower of average cost or market.
CREDIT RISK:
A majority of the Company's accounts receivable are due from companies in the
aluminum industry. Credit is extended based on evaluation of the customers'
financial condition and, generally, collateral is not required. Credit
losses are within management's expectations and historically have been very
low.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Major renewals and improvements
are capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
28
<PAGE>
Landfill closure costs are currently estimated to be in excess of $4,000,000
and are being accrued as space in the landfill is used. Landfill costs are
depreciated as space in the landfill is used.
The Company reviews its property and equipment for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset less
disposal costs.
Interest is capitalized in connection with the construction of major facilities.
Capitalized interest costs for 1996, 1995 and 1994 were $237,000, $438,000 and
$309,000 respectively.
AMORTIZATION OF INTANGIBLES:
The excess of original acquisition cost over the fair value of net assets
acquired is amortized on a straight-line basis over their expected life,
currently from 7-40 years. Management regularly reviews the remaining
goodwill with consideration toward recovery through future operating results.
Goodwill is evaluated by the Company on an undiscounted basis. Deferred debt
issuance costs, included in other assets, are being amortized over the term
of the long-term debt based upon the average amount of debt outstanding.
Patents are amortized over their remaining legal lives.
NET EARNINGS PER SHARE:
Earnings per common share are based upon the weighted average number of
common and common equivalent shares outstanding in each period. Common
equivalent shares relate solely to outstanding warrants and stock options.
STOCK-BASED COMPENSATION:
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for its employee stock options. Under APB 25, if the exercise
price of employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recorded.
NOTE B-ACQUISITIONS AND INVESTMENTS
In May 1996, the Company contributed approximately $14,000,000 for a 50%
interest in VAW-IMCO Gu-beta ray- und Recycling GmbH, a German joint venture.
This joint venture was formed to own and operate two aluminum recycling
facilities previously owned by VAW aluminium AG, an aluminum products
manufacturing company in Germany. The plants primarily serve the European
automotive market.
During 1996, the Company began construction of an aluminum recycling facility
in Coldwater, Michigan through its joint venture, IMCO Recycling of Michigan
L.L.C. The Company is a 75% managing member of the venture, which will have
a long-term supply agreement for the delivery of hot metal to its 25% member,
Alchem Aluminum, Inc. The Company's share of the total cost of the plant is
expected to be approximately $12,000,000, of which approximately
29
<PAGE>
$7,200,000 had been expended as of December 31, 1996. The plant commenced
operations in February 1997.
In October 1995, the Company acquired all of the outstanding stock of Alumar
Associates, Inc., which owned Metal Mark, Inc. Metal Mark owned and operated
three aluminum recycling plants located in Chicago Heights, Illinois;
Sikeston, Missouri; and Pittsburg, Kansas and owned 50% of a fourth facility
in East Chicago, Indiana. The value of the transaction, which was accounted
for as a purchase, was approximately $16,745,000, including the assumption of
$8,245,000 of long-term debt of Alumar. The remainder of the purchase price
consisted of $4,000,000 in cash and 208,213 shares of the Company's common
stock.
In September 1995, the Company purchased all of the assets of an aluminum
recycling facility located in Bedford, Indiana from a private aluminum
company. The transaction was accounted for as a purchase for approximately
$8,500,000 in cash.
In September 1994, the Company purchased the stock of Phoenix Smelting
Corporation which operated an aluminum recycling facility in Loudon,
Tennessee through its wholly owned subsidiary, Metal Resources, Inc.
("Loudon"). The value of the transaction, which was accounted for as a
purchase, was approximately $10,000,000, including the Company's repayment of
approximately $5,100,000 of debt and the issuance of 299,882 shares of the
Company's common stock.
See Note J--SUBSEQUENT EVENTS for acquisitions consummated subsequent to
December 31, 1996.
NOTE C--INVENTORIES
The components of inventories are:
December 31,
-----------------
1996 1995
------- ------
Finished goods $ 8,642 $6,839
Raw materials 2,974 1,986
Supplies 231 321
------- ------
$11,847 $9,146
------- ------
------- ------
30
<PAGE>
NOTE D--PROPERTY AND EQUIPMENT
The components of property and equipment are:
December 31,
--------------------
1996 1995
-------- --------
Land, buildings and improvements $ 68,890 $ 58,280
Production equipment and machinery 55,102 49,236
Office furniture, equipment and other 4,907 4,242
-------- --------
128,899 111,758
Accumulated depreciation (42,591) (32,989)
-------- --------
$ 86,308 $ 78,769
-------- --------
-------- --------
Depreciation expense for 1996, 1995 and 1994 was $10,249,000, $8,590,000 and
$6,750,000, respectively.
Estimated useful lives for buildings and improvements range from 15 to 39
years, machinery and equipment range from 3 to 15 years and office furniture
and equipment range from 3 to 10 years.
In March 1992, the Company entered into an agreement with Commonwealth
Aluminum Corporation ("Commonwealth"), formerly Barmet Aluminum Corporation,
to construct, own and operate the Uhrichsville plant adjacent to Commonw
ealth's rolling mill in Uhrichsville, Ohio and to supply Commonwealth with
all of its recycled aluminum needs. The Uhrichsville plant, including costs
for capitalized interest and for the 1994 expansion, cost approximately
$20,750,000. Commonwealth has an option to acquire up to a 49% equity
interest in the IMCO subsidiary owning the Uhrichsville plant.
NOTE E--INCOME TAXES
The provision for income taxes was as follows:
For the Year Ended December 31,
-------------------------------
1996 1995 1994
------ ------ ------
CURRENT:
Federal $3,587 $5,241 $2,690
State 369 1,485 683
------ ------ ------
3,956 6,726 3,373
DEFERRED:
Federal 7 1,678 1,955
State 169 (511) (96)
------ ------ ------
176 1,167 1,859
------ ------ ------
$4,132 $7,893 $5,232
------ ------ ------
------ ------ ------
31
<PAGE>
The income tax expense computed by applying the federal statutory tax rate to
earnings before income taxes differed from the provision for income taxes as
follows:
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
Income taxes at the federal statutory rate $3,690 $7,127 $4,659
Goodwill amortization, nondeductible 168 91 59
State income taxes, net 355 633 387
Other, net (81) 42 127
------ ------ ------
Provision for income taxes $4,132 $7,893 $5,232
------ ------ ------
------ ------ ------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as
follows:
DECEMBER 31,
---------------
1996 1995
------ ------
DEFERRED TAX LIABILITIES:
Accelerated depreciation $8,139 $7,902
Federal effect of state income taxes 473 516
Other 224 199
------ ------
Total Deferred Tax Liabilities 8,836 8,617
DEFERRED TAX ASSETS:
Net operating loss carryforwards 1,130 919
Tax credit carryforwards 1,470 1,709
Expenses not currently deductible:
Accrued landfill closure costs 188 593
Accrued vacation 326 396
Accrued stock option expense 178 322
Accrued environmental expenses 323 447
Other accruals 804 -
Federal effect of state income taxes 488 473
Other 91 230
------ ------
Total deferred tax assets 4,998 5,089
Valuation allowance (556) (690)
------ ------
Net deferred tax assets 4,442 4,399
------ ------
Net deferred tax liability $4,394 $4,218
------ ------
------ ------
At December 31, 1996, the Company had a $556,000 valuation allowance to
reduce certain deferred tax assets to amounts that are more likely to be
realized. The allowance includes $237,000 net operating loss assets
generated by Loudon prior to its acquisition by the Company. The majority of
the remaining $319,000 relates to the Company's ability to utilize state
32
<PAGE>
investment tax credits generated by the Company's Corona, California facility
which was closed in 1996.
At December 31, 1996, the Company had $1,470,000 of unused income tax credit
carryforwards, $168,000 of which expire in 1998, $96,000 of which expire in
2010, and $1,206,000 of which do not expire. The unused tax credits are
comprised of $838,000 in state investment tax credits and $632,000 in various
federal income tax credits.
At December 31, 1996, the Company had approximately $1,472,000 of unused net
operating loss carryforwards for federal purposes, which expire in the year
2008, and had approximately $8,776,000 for state purposes which expire in
2008 to 2011. The majority of the net operating loss carryforwards were
generated by Loudon.
NOTE F--LONG-TERM DEBT AND CREDIT LINE
Long-term debt is summarized as follows:
DECEMBER 31,
-----------------
1996 1995
------- -------
11.18% MONY Senior Notes $ 8,000 $ 8,000
7.28% MONY Senior Notes 15,000 15,000
7.41% MONY Senior Notes 15,000 -
7.65% Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue Bonds 5,526 -
Variable Rate Term Loan 2,750 3,750
Variable Rate Converting Revolving Loan 3,750 4,750
Other 300 423
------- -------
Subtotal 50,326 31,923
Less current maturities 2,124 2,169
------- -------
Total $48,202 $29,754
------- -------
------- -------
In January 1997, the Company entered into a new $125,000,000 credit
agreement. The Company used a portion of the proceeds from borrowings under
the new credit agreement to repay all of the MONY Senior Notes, the Variable
Rate Term Loan, the Variable Rate Converting Revolving Loan and $2,000,000 in
borrowings outstanding under a short-term Revolving Promissory Note. See
NOTE J--"SUBSEQUENT EVENTS" for a description of the terms of the new credit
agreement.
The 7.65% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue Bonds
are due on May 1, 2016. The bonds were issued in conjunction with the
Company's construction of its salt cake processing plant in Morgantown,
Kentucky. The bonds were issued at a 1% discount which is being amortized
over the life of the loan.
33
<PAGE>
The Variable Rate Term Loan and the Variable Rate Converting Revolving Loan
had fluctuating interest rates based on the Company's ratio of total debt to
earnings before interest, tax, depreciation and amortization. At December 31,
1996, the interest rate on both loans was 6.75%.
In 1995, the Company increased its short-term working capital line of credit
borrowing limit to $10,000,000 under a restated revolving credit facility
(the "Revolving Facility"). On May 31, 1996, the Company further increased
its limit to $12,000,000. Under the Revolving Facility, the Company had a
subfacility for the issuance of standby letters of credit. To meet working
capital needs, on December 30, 1996, the Company borrowed $2,000,000 under
this Revolving Facility at an interest rate of 8.25%.
The fair value of the Company's debt approximates its carrying value due to
its recent issuance, floating rate and relatively short maturity.
NOTE G-EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing retirement plan covering most of its
employees who meet defined service requirements. Contributions are
determined annually by the Board of Directors and may be as much as 15% of
covered salaries. Contributions for 1996, 1995 and 1994 were $1,366,000,
$1,331,000, and $1,039,000, respectively.
In July 1996, the Company amended and restated the profit-sharing retirement
plan to allow elective contributions as described in the Internal Revenue
Code Section 401(k). Subject to certain dollar limits, employees may
contribute a percentage of their salaries to this plan, and the Company will
match a portion of the employees' contributions. The Company's match of
employee contributions totaled $189,000 for 1996.
NOTE H--STOCK OPTION PLANS
In 1990, the Company adopted an amended and restated stock option plan. This
plan provides for the granting of nonqualified and incentive stock options.
The number of shares of common stock authorized for issuance under the plan
is 1,200,000 shares. Options granted under the plan have various vesting
periods and are exercisable for a period of 10 years from the date of grant,
although options may expire earlier because of termination of employment.
In 1992, the Company adopted the 1992 Stock Option Plan, which provides for
the granting of nonqualified and incentive stock options to employees,
officers, consultants and nonemployee members of the Board of Directors.
Options granted to employees under this plan have various vesting periods.
Annually, nonemployee directors will be granted nonqualified stock options
exercisable after six months from the date of grant, equal to that number of
shares determined by dividing the annual director fee amount by the fair
market value of a share of common stock as of the date of grant. All options
granted under this plan, once vested, are exercisable for a period of up to
10 years from the date of grant, although options may expire earlier because
of termination of employment or service.
In 1996, the Company adopted the Annual Incentive Program, which provides
certain of the Company's key employees with annual incentive compensation
tied to the achievement of pre-
34
<PAGE>
established and objective performance goals. This plan provides for the
granting of stock options to key management employees, pursuant to the plan
formula, in the event that the Company's return on total assets (as defined
in the plan) for any bonus year exceeds 15%. Nonqualified and incentive
stock options may be granted, and the terms of the plan concerning the stock
options are substantially the same as the corresponding terms of the 1992
Stock Option Plan.
The 1992 Stock Option Plan and the 1996 Annual Incentive Program allow for
the payment of all or a portion of the exercise price and tax withholding
obligations in shares of the Company's common stock delivered and/or
withheld. Such payment or withholding will be valued at fair market value as
of the date of exercise. Participants making use of this feature will
automatically be granted a reload stock option to purchase a number of shares
equal to the number of shares delivered and/or withheld. When a reload stock
option is granted, a portion of the shares issued to the participant will be
designated as restricted stock for a period of five years, although the
restriction may be removed earlier under certain circumstances. Reload stock
options have an exercise price equal to the fair market value as of the date
of exercise of the original options and will expire on the same date as the
original options.
In 1996, 1995, and 1994 the Company acquired from employees and placed in the
treasury, 48,806, 40,652 and 27,665 shares, respectively, pursuant to
provisions of the Company's stock option plan. Such shares were tendered or
withheld in satisfaction of those employees' federal and state withholding
taxes on compensation resulting from the exercise of nonqualified stock
options and for the aggregate exercise cost of certain of the options.
Transactions under the option plans are as follows:
<TABLE>
1996 1995 1994
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding Jan. 1 1,291,364 $12.05 1,172,402 $10.19 833,555 $ 8.63
Options granted 395,422 16.25 200,473 22.55 389,847 13.17
Options exercised (138,227) 6.00 (77,590) 11.09 (47,400) 7.29
Options forfeited (6,600) 17.64 (3,921) 13.55 (3,600) 13.63
--------- --------- ---------
Options outstanding
at Dec. 31 1,541,959 13.65 1,291,364 12.05 1,172,402 10.19
--------- --------- ---------
--------- --------- ---------
Options exercisable at
Dec. 31 776,732 11.17 714,991 8.19 580,355 7.00
--------- --------- ---------
--------- --------- ---------
Options available for
grant at Dec. 31 499,821 391,646 38,198
--------- --------- ---------
--------- --------- ---------
</TABLE>
35
<PAGE>
Information related to options outstanding at December 31, 1996, is
summarized below:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- --------------- ------- ----------- -------- ------- --------
$0.10 8,850 1 Year $ 0.10 8,850 $ 0.10
$4.57 - $7.55 349,100 4 Years 6.51 349,100 6.51
$12.38 - $14.75 596,114 7 Years 13.36 309,526 13.42
$16.25 - $23.75 587,895 10 Years 18.38 109,256 22.21
--------- -------
1,541,959 776,732
--------- -------
--------- -------
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" requires disclosure of pro forma net earnings and
net earnings per common share information computed as if the Company had
accounted for its employee stock options granted subsequent to December 31,
1995 under the fair value method set forth in SFAS No. 123. The fair value
of the Company's outstanding stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted
average assumptions:
1996 1995
----- -----
Expected option life in years 3.9 4.0
Risk-free interest rate 6.11% 5.59%
Volatility factor 0.305 0.242
Dividend yield 1.22% 0.89%
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting period. In
addition, because SFAS No. 123 is applicable only to options granted
subsequent to December 31, 1994, the pro forma information does not reflect
the pro forma effect of all previous stock option grants of the Company.
Therefore, the pro forma information is not necessarily indicative of future
amounts until SFAS No. 123 is applied to all outstanding stock options.
36
<PAGE>
The Company's pro forma information is as follows:
DECEMBER 31,
------------------
1996 1995
------ -------
Net earnings--as reported $6,720 $12,470
Net earnings--pro forma $6,406 $12,455
Net earnings per common share-- as reported $ 0.55 $ 1.03
Net earnings per common share-- pro forma $ 0.52 $ 1.03
Weighted-average fair value of options
granted during the year $ 4.83 $ 5.88
NOTE I--OPERATIONS
During 1996, 1995 and 1994, sales to Aluminum Company of America ("Alcoa")
totaled 13%, 23% and 30%, respectively, of revenues. Sales to Commonwealth
Aluminum totaled 12% of revenues in 1994. No other customer accounted for
more than 10% of revenues in 1996, 1995 and 1994. The loss of Alcoa or
Commonwealth would have a material adverse effect upon the business of the
Company and its future operating results; however, the Company has secured
long-term supply agreements with these customers.
During the third quarter of 1996, the Company recorded a charge to cost of
sales of $3,577,000 resulting from management's decision to close the
Company's Corona, California aluminum recycling plant.
NOTE J--SUBSEQUENT EVENTS
ACQUISITIONS:
In January 1997, the Company acquired all of the outstanding common stock of
IMSAMET, Inc. ("IMSAMET"), a wholly owned subsidiary of EnviroSource Inc.,
for $58,000,000 in cash, not including acquisition costs. IMSAMET operates
and owns or has a majority interest in three aluminum recycling plants
located in Goodyear, Arizona, Post Falls, Idaho and Wendover, Utah. In
addition, IMSAMET has a 50% interest in a joint venture facility, adjacent to
the Utah plant, which uses a proprietary process to reclaim materials from
salt cake.
The acquisition will be accounted for using the purchase method of
accounting. Accordingly, the purchase price will be allocated to the net
assets acquired based on their estimated fair values.
Also in January 1997, the Company acquired all of the outstanding common
stock of Rock Creek Aluminum, Inc. in exchange for 618,137 shares of the
Company's common stock valued at approximately $9,500,000. The acquisition
will be accounted for using the purchase method of
37
<PAGE>
accounting. Rock Creek owns and operates three Ohio facilities located in
Cleveland, Elyria and Rock Creek. These facilities utilize milling,
smelting, blending, testing and packaging equipment to process various types
of raw materials, including aluminum dross and scrap, various minerals and
slags.
CREDIT AGREEMENT:
In connection with the above acquisitions, the Company entered into a new
$125,000,000 credit agreement ("Credit Agreement") with certain lenders,
including Merrill Lynch (syndication agent) and Texas Commerce Bank National
Association (administrative agent). The Company received $110,000,000 at the
closing and used approximately $61,000,000 for acquisitions. The remaining
$49,000,000 of the proceeds was used to retire substantially all of its
outstanding debt as of December 31, 1996. The early debt retirement generated
a loss of $1,318,000 (net of income taxes) and will be reported as an
extraordinary item in the first quarter of 1997.
The credit agreement provides for $125,000,000 of senior secured credit
facilities consisting of a $105,000,000 term loan and a $20,000,000 revolving
credit agreement. Of the $20,000,000 revolving credit agreement, $4,000,000
is to be used, as needed, by the Company for standby letters of credit. In
January 1997, the Company had $1,800,000 of standby letters of credit
outstanding. The credit facilities bear a fluctuating interest rate based on
LIBOR or the prime rate, plus a credit margin which is based on the Company's
rate of total debt to earnings before interest, taxes, depreciation and
amortization.
A summary of long-term debt following these transactions is as follows:
New Credit Agreement $110,000
Debt outstanding at December 31, 1996 not repaid in January 1997 5,826
--------
$115,826
--------
--------
The term loan has a final maturity of seven years, and the revolving credit
agreement has a final maturity of five years. Scheduled maturities of
long-term debt following the borrowings under the Credit Agreement and
repayments of long-term debt in January 1997 are as follows:
1997 $ 5,624
1998 10,507
1999 15,000
2000 17,169
2001 18,000
After 2001 49,526
--------
Total $115,826
--------
--------
The new Credit Agreement imposes certain restrictions, including: (i) a
prohibition of other indebtedness, (ii) maintenance of certain financial
ratios, and (iii) limitations on investments, dividends, and capital
expenditures. The annual limitations on cash dividends are as follows:
$3,500,000 for 1997 and 1998, $4,000,000 for 1999 and 2000 and $6,000,000
after the year
38
<PAGE>
2000. The Credit Agreement is secured by substantially all of the Company's
assets, as well as a pledge of the capital stock of substantially all of the
Company's subsidiaries.
NOTE K--QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
1ST 2ND 3RD 4TH TOTAL
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues $50,718 $50,465 $53,689 $55,999 $210,871
Gross profit 7,890 7,807 2,625 7,215 25,538
Income (loss) before tax 4,750 4,293 (1,005) 2,814 10,852
Net earnings (loss) 2,963 2,598 (798) 1,958 6,720
Earnings (loss) per common share 0.24 0.21 (0.07) 0.16 0.55
1ST 2ND 3RD 4TH TOTAL
1995 QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------- ------- ------- ------- ------- --------
Revenues $30,746 $29,725 $32,105 $48,591 $141,167
Gross profit 7,435 7,315 7,783 8,406 30,939
Income before tax 4,824 4,933 5,543 5,063 20,363
Net earnings 2,894 2,959 3,327 3,290 12,470
Earnings (loss) per common share 0.24 0.25 0.27 0.27 1.03
</TABLE>
During the third quarter of 1996, the Company recorded a charge of $4,177,000
resulting from management decisions to close the Company's Corona, California
aluminum recycling plant and to accelerate the closure of the first cell of
the Company's landfill in Morgantown, Kentucky.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors of the
Company appears under the caption "Election of Directors" in the definitive
Proxy Statement (herein so called) of the Company relating to the Company's
1997 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission (the "Commission") pursuant to Regulation 14A of the
Securities Exchange Act of 1934, which information is incorporated herein by
reference. It is currently anticipated that the Proxy Statement will be
publicly available and mailed to stockholders in April 1997. Certain
information as to executive officers is included herein under PART I, ITEM
1. "BUSINESS--EXECUTIVE OFFICERS."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the caption "Remuneration
of Directors and Officers" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the caption "Voting and
Principal Stockholders" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption "Remuneration
of Directors and Officer--Directors Compensation" in the Proxy Statement,
which information is incorporated herein by reference.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Consolidated Financial Statements: See index to Consolidated Financial
Statements and Financial Statement Schedules on Page 22 hereof.
2. Consolidated Financial Statement Schedules: See index to Consolidated
Financial Statements and Financial Statement Schedules on Page 22 hereof.
3. Exhibits:
--------
3.1 Certificate of Incorporation of IMCO Recycling Inc., as
amended, filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-2 (No. 33-48571) and incorporated herein
by reference.
3.2 By-laws of IMCO Recycling Inc., as amended, filed as Exhibit
4.7 to the Company's Registration Statement on Form S-2 (No.
33-48571) and incorporated herein by reference.
4.1 Specimen Stock Certificate of the Common Stock, $0.10 par
value, of IMCO Recycling Inc., filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-2 (No. 33-48571)
and incorporated herein by reference.
10.6 Amended and Restated Registration Agreement, dated September
30, 1988, among IMCO Recycling Inc., Merrill Lynch
Interfunding Inc., Don V. Ingram, Larry Thrasher, and PTX
Partners, filed as Exhibit 10.6 to the Company's 1993 Form
10-K and incorporated herein by reference.
10.7 Amendment No. 1 to Amended and Restated Registration
Agreement, dated as of December 30, 1988, filed as Exhibit
10.7 to the Company's 1994 Form 10-K and incorporated herein
by reference.
10.8 Amendment, dated as of September 5, 1990, to Registration
Agreement between Merrill Lynch Interfunding Inc. and Don V.
Ingram, filed as Exhibit 10.8 to the Company's 1994 Form 10-K
and incorporated herein by reference.
10.9 IMCO Recycling Inc. Amended and Restated Stock Option Plan,
filed as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 (the "1992
Form 10-K") and incorporated herein by reference.
10.16 Assignment, dated September 16, 1986, from Clarence W. Haack
and Genevieve Haack to International Metal Co., filed as
Exhibit 10.16 to the Company's 1994 Form 10-K and incorporated
herein by reference.
41
<PAGE>
10.17 Agreement, dated as of August 26, 1995, between IMCO Recycling
Inc., Rockwood, Tennessee Facility, and International Union,
United Steelworkers of America, and filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 Form 10-K"), and incorporated
herein by reference.
10.19 Split-Dollar Life Insurance Agreement, dated as of November 5,
1990, between Thomas W. Rogers and IMCO Recycling Inc., filed
as Exhibit 10.19 to the Company's 1994 Form 10-K and
incorporated herein by reference (The Company is a party to
virtually identical Split-Dollar Life Insurance Agreements
with Paul V. Dufour, C. Lee Newton and Richard L. Kerr. These
agreements have been omitted since they are substantially
identical to Mr. Rogers' in all material respects).
10.22 Supply Agreement between Barmet Aluminum Corporation (now
Commonwealth Aluminum Corporation) and the Company, dated
March 2, 1992, filed as Exhibit 10.25 to the Company's 1991
Form 10-K and incorporated herein by reference.
10.23 Right of First Refusal Agreement between Barmet Aluminum
Corporation (now Commonwealth Aluminum Corporation) and the
Company, dated March 2, 1992, relating to Commonwealth's
Indiana recycling plant, filed as Exhibit 10.23 to the
Company's 1994 Form 10-K and incorporated herein by reference.
10.24 Agreement, effective as of December 1, 1995, between IMCO
Recycling of Ohio Inc. and the United Mine Workers of America,
and filed as Exhibit 10.24 to the Company's 1995 Form 10-K
and incorporated herein by reference.
10.25 Consulting Agreement, dated as of May 31, 1985, between Don V.
Ingram and Frontier Texas Corporation, filed as Exhibit 10.25
to the Company's 1994 Form 10-K and incorporated herein by
reference.
10.26 IMCO Recycling Inc. 1992 Stock Option Plan, as amended
December 15, 1994, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995, and incorporated herein by reference.
10.27 IMCO Recycling Inc. 1992 Bonus Participation Plan filed as
Exhibit 10.32 to the 1992 Form 10-K and incorporated herein
by reference.
10.29 Agreement, effective as of January 1, 1994, between IMCO
Recycling Inc. and Aluminum Company of America, filed as
Exhibit 10.34 to the Company's 1993 Form 10-K and incorporated
herein by reference.
10.35 First Amendment to processing agreement by and among the Rigid
Packaging division of Aluminum Company of America, the Company
and Metal Resources Inc., filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995, and incorporated herein by
reference.
10.36 Agreement and Plan of Merger, dated as of October 1, 1995,
among IMCO Recycling Inc., IMCO Recycling of Illinois Inc.,
Alumar Associates, Inc., and the Shareholders, filed as
Exhibit 1 to the Company's Current Report on Form 8-K,
42
<PAGE>
dated October 3, 1995, and incorporated herein by reference.
10.37 Registration Rights Agreement, dated as of October 1, 1995,
among IMCO Recycling Inc. and the former Alumar Shareholders,
filed as Exhibit 2 to the Company's Current Report on Form 8-K,
dated October 3, 1995, and incorporated herein by reference.
10.41 Stock Purchase Agreement by and among IMCO Recycling Inc.,
EnviroSource, Inc. and IMSAMET, Inc. dated November 26, 1996.
(In accordance with Item 601 of Regulation S-K, the copy of
the IMSAMET Agreement filed with the Securities and Exchange
Commission (the "Commission") does not include the Schedules
or exhibits thereto. The Company agrees to furnish such
information supplementally to the Commission upon request).
Filed as Exhibit 2.1 to the Company's Current Report on Form
8-K, dated January 21, 1997, and incorporated herein by
reference.
10.42 Amendment No. 1 to Stock Purchase Agreement by and among IMCO
Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated
January 21, 1997. Filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated January 21, 1997, and
incorporated herein by reference.
10.43 Credit Agreement by and among IMCO Recycling Inc., the
Subsidiary Guarantors named therein, the Lenders thereunder,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Texas Commerce Bank National Association,
dated January 21, 1997. (In accordance with Item 601 of
Regulation S-K, the copy of the Credit Agreement filed with
the Commission does not include the schedules or exhibits
thereto. The Company agrees to furnish such information
supplementally to the Commission upon request). Filed as
Exhibit 2.3 to the Company's Current Report on Form 8-K, dated
January 21, 1997, and incorporated herein by reference.
10.44 Security Agreement by and among IMCO Recycling Inc., the
Subsidiary Guarantors named therein and Texas Commerce Bank
National Association as Administrative Agent for the Lenders,
dated January 21, 1997. Filed as Exhibit 2.4 to the Company's
Current Report on Form 8-K, dated January 21, 1997, and
incorporated herein by reference.
*21 Subsidiaries of IMCO Recycling Inc. as of March 25, 1997.
*23 Consent of Ernst & Young LLP.
*27 Financial Data Schedule.
- ----------------
* Filed herewith.
(b) Reports on Form 8-K filed in fourth quarter 1996:
None.
(c) See sub-item (a) above.
(d) See sub-item (a) above.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 25, 1997 IMCO Recycling Inc.
By: /s/ Robert R. Holian
----------------------------------------
Robert R. Holian, Vice President and
Controller, Principal Accounting Officer
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/ Don V. Ingram Director, Chairman of the Board, March 25, 1997
- ---------------------- Chief Executive Officer
Don V. Ingram
/s/ Jack M. Brundrett Director March 25, 1997
- ----------------------
Jack M. Brundrett
/s/ Ralph L. Cheek Director March 25, 1997
- ----------------------
Ralph L. Cheek
/s/ John J. Fleming Director March 25, 1997
- ----------------------
John J. Fleming
/s/ Thomas A. James Director March 25, 1997
- ----------------------
Thomas A. James
/s/ Don Navarro Director March 25, 1997
- ----------------------
Don Navarro
/s/ Jack C. Page Director March 25, 1997
- ----------------------
Jack C. Page
/s/ Paul V. Dufour Executive Vice President Finance March 25, 1997
- ---------------------- and Administration (Principal
Paul V. Dufour Financial Officer)
/s/ Robert R. Holian Vice President and Controller March 25, 1997
- ---------------------- (Principal Accounting Officer)
Robert R. Holian
44
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of IMCO Recycling Inc., as
amended, filed as Exhibit 4.6 to the Company's Registration
Statement on Form S-2 (No. 33-48571) and incorporated herein
by reference.
3.2 By-laws of IMCO Recycling Inc., as amended, filed as Exhibit
4.7 to the Company's Registration Statement on Form S-2 (No.
33-48571) and incorporated herein by reference.
4.1 Specimen Stock Certificate of the Common Stock, $0.10 par
value, of IMCO Recycling Inc., filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-2 (No. 33-48571)
and incorporated herein by reference.
10.6 Amended and Restated Registration Agreement, dated September
30, 1988, among IMCO Recycling Inc., Merrill Lynch
Interfunding Inc., Don V. Ingram, Larry Thrasher, and PTX
Partners, filed as Exhibit 10.6 to the Company's 1993 Form
10-K and incorporated herein by reference.
10.7 Amendment No. 1 to Amended and Restated Registration
Agreement, dated as of December 30, 1988, filed as Exhibit
10.7 to the Company's 1994 Form 10-K and incorporated herein
by reference.
10.8 Amendment, dated as of September 5, 1990, to Registration
Agreement between Merrill Lynch Interfunding Inc. and Don V.
Ingram, filed as Exhibit 10.8 to the Company's 1994 Form 10-K
and incorporated herein by reference.
10.9 IMCO Recycling Inc. Amended and Restated Stock Option Plan,
filed as Exhibit 10.11 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 (the "1992
Form 10-K") and incorporated herein by reference.
10.16 Assignment, dated September 16, 1986, from Clarence W. Haack
and Genevieve Haack to International Metal Co., filed as
Exhibit 10.16 to the Company's 1994 Form 10-K and incorporated
herein by reference.
45
<PAGE>
10.17 Agreement, dated as of August 26, 1995, between IMCO Recycling
Inc., Rockwood, Tennessee Facility, and International Union,
United Steelworkers of America, and filed as Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 Form 10-K"), and incorporated
herein by reference.
10.19 Split-Dollar Life Insurance Agreement, dated as of November 5,
1990, between Thomas W. Rogers and IMCO Recycling Inc., filed
as Exhibit 10.19 to the Company's 1994 Form 10-K and
incorporated herein by reference (The Company is a party to
virtually identical Split-Dollar Life Insurance Agreements
with Paul V. Dufour, C. Lee Newton and Richard L. Kerr. These
agreements have been omitted since they are substantially
identical to Mr. Rogers' in all material respects).
10.22 Supply Agreement between Barmet Aluminum Corporation (now
Commonwealth Aluminum Corporation) and the Company, dated
March 2, 1992, filed as Exhibit 10.25 to the Company's 1991
Form 10-K and incorporated herein by reference.
10.23 Right of First Refusal Agreement between Barmet Aluminum
Corporation (now Commonwealth Aluminum Corporation) and the
Company, dated March 2, 1992, relating to Commonwealth's
Indiana recycling plant, filed as Exhibit 10.23 to the
Company's 1994 Form 10-K and incorporated herein by reference.
10.24 Agreement, effective as of December 1, 1995, between IMCO
Recycling of Ohio Inc. and the United Mine Workers of America,
and filed as Exhibit 10.24 to the Company's 1995 Form 10-K
and incorporated herein by reference.
10.25 Consulting Agreement, dated as of May 31, 1985, between Don V.
Ingram and Frontier Texas Corporation, filed as Exhibit 10.25
to the Company's 1994 Form 10-K and incorporated herein by
reference.
10.26 IMCO Recycling Inc. 1992 Stock Option Plan, as amended
December 15, 1994, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995, and incorporated herein by reference.
10.27 IMCO Recycling Inc. 1992 Bonus Participation Plan filed as
Exhibit 10.32 to the 1992 Form 10-K and incorporated herein
by reference.
10.29 Agreement, effective as of January 1, 1994, between IMCO
Recycling Inc. and Aluminum Company of America, filed as
Exhibit 10.34 to the Company's 1993 Form 10-K and incorporated
herein by reference.
10.35 First Amendment to processing agreement by and among the Rigid
Packaging division of Aluminum Company of America, the Company
and Metal Resources Inc., filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995, and incorporated herein by
reference.
10.36 Agreement and Plan of Merger, dated as of October 1, 1995,
among IMCO Recycling Inc., IMCO Recycling of Illinois Inc.,
Alumar Associates, Inc., and the Shareholders, filed as
Exhibit 1 to the Company's Current Report on Form 8-K,
46
<PAGE>
dated October 3, 1995, and incorporated herein by reference.
10.37 Registration Rights Agreement, dated as of October 1, 1995,
among IMCO Recycling Inc. and the former Alumar Shareholders,
filed as Exhibit 2 to the Company's Current Report on Form 8-K,
dated October 3, 1995, and incorporated herein by reference.
10.41 Stock Purchase Agreement by and among IMCO Recycling Inc.,
EnviroSource, Inc. and IMSAMET, Inc. dated November 26, 1996.
(In accordance with Item 601 of Regulation S-K, the copy of
the IMSAMET Agreement filed with the Securities and Exchange
Commission (the "Commission") does not include the Schedules
or exhibits thereto. The Company agrees to furnish such
information supplementally to the Commission upon request).
Filed as Exhibit 2.1 to the Company's Current Report on Form
8-K, dated January 21, 1997, and incorporated herein by
reference.
10.42 Amendment No. 1 to Stock Purchase Agreement by and among IMCO
Recycling Inc., EnviroSource, Inc. and IMSAMET, Inc. dated
January 21, 1997. Filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated January 21, 1997, and
incorporated herein by reference.
10.43 Credit Agreement by and among IMCO Recycling Inc., the
Subsidiary Guarantors named therein, the Lenders thereunder,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, and Texas Commerce Bank National Association,
dated January 21, 1997. (In accordance with Item 601 of
Regulation S-K, the copy of the Credit Agreement filed with
the Commission does not include the schedules or exhibits
thereto. The Company agrees to furnish such information
supplementally to the Commission upon request). Filed as
Exhibit 2.3 to the Company's Current Report on Form 8-K, dated
January 21, 1997, and incorporated herein by reference.
10.44 Security Agreement by and among IMCO Recycling Inc., the
Subsidiary Guarantors named therein and Texas Commerce Bank
National Association as Administrative Agent for the Lenders,
dated January 21, 1997. Filed as Exhibit 2.4 to the Company's
Current Report on Form 8-K, dated January 21, 1997, and
incorporated herein by reference.
*21 Subsidiaries of IMCO Recycling Inc. as of March 25, 1997.
*23 Consent of Ernst & Young LLP.
*27 Financial Data Schedule.
- ----------------
* Filed herewith.
47
<PAGE>
EXHIBIT 21
LIST OF IMCO RECYCLING INC. SUBSIDIARIES
Wholly owned unless otherwise indicated.
1. IMCO Investment Company, a Delaware Corporation
2. Interamerican Zinc, Inc., a Delaware Corporation
3. IMCO Recycling of Ohio Inc., a Delaware Corporation
4. IMCO Management Partnership L.P., a Texas Limited Partnership
5. IMCO Recycling of California, Inc., a Delaware Corporation
6. IMCO Energy Corp., a Delaware Corporation
7. Phoenix Smelting Corporation, a Georgia Corporation
8. IMCO Recycling of Loudon Inc., a Tennessee Corporation
9. IMCO International, Inc., a Delaware Corporation
10. IMCO Recycling of Indiana Inc., a Delaware Corporation
11. IMCO Recycling of Illinois Inc., a Delaware Corporation
12. IMCO Indiana Partnership L.P., an Indiana Limited Partnership
13. Metal Mark, Inc., an Illinois Corporation
14. Pittsburg Aluminum, Inc., a Kansas Corporation
15. VAW-IMCO Guss und Recycling GmbH, a private company with limited
liability organized under the laws of Germany (50% owned)
16. IMCO Recycling of Michigan L.L.C., a Delaware Limited Liability Company
(75% owned)
17. IMCO Recycling (UK) Ltd., a private company limited by shares and
organized under the laws of England and Wales
18. IMCO Acquisition Inc., a Delaware Corporation
19. IMSAMET, Inc., a Delaware Corporation
20. Imsamet of Idaho, Inc., a Delaware Corporation
21. Imsamet of Utah, Inc., a Delaware Corporation
22. Imsamet of Arizona, an Arizona General Partnership (70% owned)
23. Solar Aluminum Technology Services, a Utah General Partnership (50% owned)
24. Rock Creek Aluminum, Inc., an Ohio Corporation
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 No. 33-76780, Form S-8
No. 333-00075, and Form S-8 No. 333-07091) pertaining to the Nonqualified
Stock Option Plan of IMCO Recycling Inc., the IMCO Recycling Inc. Amended and
Restated Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan,
and the IMCO Recycling Inc. Annual Incentive Program or our report dated
January 30, 1997, with respect to the consolidated financial statements of IMCO
Recycling Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1996.
Ernst & Young LLP
Dallas, Texas
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,070
<SECURITIES> 0
<RECEIVABLES> 33,655
<ALLOWANCES> 0
<INVENTORY> 11,847
<CURRENT-ASSETS> 53,316
<PP&E> 128,899
<DEPRECIATION> (42,591)
<TOTAL-ASSETS> 164,707
<CURRENT-LIABILITIES> 20,667
<BONDS> 48,202
0
0
<COMMON> 1,202
<OTHER-SE> 87,133
<TOTAL-LIABILITY-AND-EQUITY> 164,707
<SALES> 210,871
<TOTAL-REVENUES> 210,871
<CGS> 185,333
<TOTAL-COSTS> 185,333
<OTHER-EXPENSES> 11,774
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,421
<INCOME-PRETAX> 10,852
<INCOME-TAX> 4,132
<INCOME-CONTINUING> 6,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,720
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
