<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 18, 1997
IMCO Recycling Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
1-7170 75-2008280
- -------------------------- -----------------------------------
(Commission File Number) (IRS Employer Identification No.)
5215 North O'Connor Blvd., Suite 940, Irving, Texas 75039
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (972) 869-6575
<PAGE> 2
With respect to each contract, agreement or other document referred to herein
and filed with the Securities and Exchange Commission as an exhibit to this
report, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Item 5. Other Events
On September 18, 1997, IMCO Recycling Inc. (the "Company") announced that it had
entered into a non-binding letter of intent to acquire in a privately-negotiated
transaction (the "Alchem Acquisition") all of the capital stock of Alchem
Aluminum, Inc. ("Alchem"), in exchange for cash and 1,208,339 shares of common
stock, $0.10 par value per share ("Common Stock") of the Company. The amount of
cash to be paid will be determined by deducting from $26,250,000, the aggregate
amount of Alchem's obligations for borrowed money outstanding as of the closing
date of the acquisition. At September 30, 1997, the amount of Alchem's
indebtedness for borrowed money outstanding was $13,416,000.
A total of 150,000 shares of Common Stock will be held in escrow by the Company
for three years from the closing date of the acquisition as potential recourse
for the Company for breaches of representations and covenants by the Alchem
shareholders. The terms of the letter of intent also provide that all shares of
Common Stock to be issued in connection with the Alchem Acquisition will be
contractually restricted from resale for periods of up to three years. Pursuant
to the terms of the definitive acquisition agreement to be entered into among
Alchem, Alchem shareholders and the Company, up to 350,000 shares of Common
Stock may be transferred after one year from the closing date, up to an
additional 350,000 shares may be transferred after two years from the closing
date and all remaining shares may be transferred three years after the closing
date. In addition, the Company plans to grant "piggyback" registration rights
beginning in 1998 and rights to one demand registration commencing after the
third anniversary of the closing date to the Alchem shareholders with regard to
the shares of Common Stock issued in the Alchem Acquisition. The Company
intends to account for the Alchem Acquisition using the purchase method of
accounting.
Alchem is a producer of specification aluminum alloys for automotive
manufacturers and their suppliers and has been operating its facility located
in Coldwater, Michigan since 1972. Alchem and the Company have also been
operating under a joint venture agreement entered into in 1995 to construct and
operate an aluminum recycling plant adjacent to Alchem's processing facility in
Coldwater. This facility began operating in February 1997 and is expected to
reach full capacity in October 1997. Alchem's facility has an annual melting
capacity of 180 million pounds; the joint venture facility with the Company has
an annual capacity of 150 million pounds. For its fiscal year ended October
31, 1996, Alchem had net sales of $112 million. For the six months ended June
30, 1997, Alchem had net sales of $74 million.
The Alchem Acquisition will permit the Company to increase its participation in
the automotive industry, broaden its customer base and expand its product range
to include specification alloys. The Company estimates that, when the
acquisition is completed, approximately 30% of the Company's annual domestic
capacity will be supplied to the transportation sector. The acquisition is
expected to increase the Company's total 1998 processing capacity to
approximately 2.6 billion pounds.
The terms concerning the acquisition contained in the letter of intent are
non-binding on the signatories thereto. In addition, the Alchem Acquisition is
subject to the conditions contained in the letter of intent and to be contained
in the definitive acquisition agreement to be entered into in connection with
the acquisition. Although the Company believes that such conditions will be
fully satisfied on or before the anticipated closing in November 1997, many of
these conditions are beyond the control of the Company, and there can be no
assurance of when or whether the closing of the Alchem Acquisition will occur.
Closing conditions will include the satisfaction of usual and customary closing
conditions, including the absence of any injunction or other legal restraint,
the consent of third parties and governmental entities, the accuracy, in all
material respects, of the representations and warranties to be made in the
purchase agreement and the performance of all pre-closing agreements.
1
<PAGE> 3
Upon the closing of the Alchem Acquisition, it is expected that William
Warshauer, the principal shareholder of Alchem, his family and certain
affiliates of Alchem will own approximately 1.2 million shares of Common Stock,
or 8.7% of the outstanding shares of Common Stock.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Current Report on Form 8-K may be deemed
to be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 and is subject to the "Safe Harbor" provisions
of that section. This information includes, without limitation, statements
concerning the completion of the pending Alchem Acquisition and the expected
effects thereof; future processing capacities of the Company and percentages of
capacity supplying the transportation sector; and the terms and conditions of
the definitive acquisition agreement expected to be executed to govern the
Alchem Acquisition. These statements are based on current expectations and
involve a number of risks and uncertainties. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to be correct.
When used in this report, the words "anticipate," "estimate," "expect," "may,"
"project" and similar expressions are intended to be among the statements that
identify forward-looking statements. Important factors which could affect the
Company's actual results and cause actual results to differ materially from
those results which might be projected, forecast or estimated by the Company in
such forward-looking statements include, but are not limited to, the following:
changes in the terms of the non-binding letter of intent to govern the Alchem
Acquisition due to subsequent negotiations of the definitive acquisition
agreement, the results of due diligence reviews, additional conditions or
developments in the business and prospects concerning Alchem and the Company;
and the future mix of business at the Company's various facilities. The
foregoing review of factors should not be construed as exhaustive.
Financial Statements and Exhibits Regarding Pending Acquisition of Alchem
Aluminum, Inc.
*(a) Audited Financial Statements of Business to be Acquired:
Financial Statements of Alchem Aluminum, Inc.
o Report of Independent Public Accountants
o Balance Sheets as of October 31, 1996 and 1995
o Statements of Income and Retained Earnings for the years
ended October 31, 1996 and 1995
o Statements of Cash Flows for the years ended October 31,
1996 and 1995
o Notes to Financial Statements
*(b) Interim Financial Statements of Business to be Acquired
(unaudited):
Interim Financial Statements of Alchem Aluminum, Inc.
o Balance Sheet as of June 30, 1997
o Statement of Income and Retained Earnings for the eight
months ended June 30, 1997
o Statement of Cash Flows for the eight months ended June 30,
1997
o Notes to Financial Statements
*(c) Pro Forma Financial Information (unaudited):
o Pro Forma Condensed Consolidated Statement of Earnings for
the year ended December 31, 1996
o Pro Forma Condensed Consolidated Statement of Earnings for
the six months ended June 30, 1997
o Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1997
o Notes to Pro Forma Condensed Consolidated Financial
Statements
(d) Exhibits:
** 10.1 Letter of Intent dated September 15, 1997, by and
between IMCO Recycling Inc. and Alchem Aluminum, Inc.
** 10.2 Amendment to Letter of Intent dated September 29,
1997.
* 23.1 Consent of Arthur Andersen LLP.
- --------------------
* Filed herewith.
** Previously filed.
2
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
IMCO RECYCLING INC.
("Registrant")
By: /s/ Robert R. Holian
--------------------------------
Robert R. Holian
Vice President and Controller
(Principal Accounting Officer)
Date: October 9, 1997
3
<PAGE> 5
ALCHEM ALUMINUM, INC.
=======================
FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Alchem Aluminum, Inc.:
We have audited the accompanying balance sheets of ALCHEM ALUMINUM, INC. (an
Indiana corporation) as of October 31, 1996 and 1995, and the related
statements of income and retained earnings and cash flows for the years then
ended. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Alchem Aluminum, Inc. as of
October 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Toledo, Ohio,
December 9, 1996.
F-2
<PAGE> 7
ALCHEM ALUMINUM, INC.
BALANCE SHEETS
AS OF OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
A S S E T S (Note 3) 1 9 9 6 1 9 9 5
------------------------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 561,432 $ 269,744
Trade accounts receivable, net of
allowance for doubtful accounts
of $0 in 1996 and $227,000 in 1995
(Note 2) 14,044,767 13,029,891
Inventories (Note 2) 10,280,006 9,210,616
Prepaid expenses 223,191 167,497
------------ ------------
Total current assets 25,109,396 22,677,748
------------ ------------
PROPERTY, PLANT AND EQUIPMENT,
at cost (Note 2):
Land and improvements 809,474 809,474
Buildings and improvements 3,962,877 3,841,433
Machinery and equipment 9,761,667 8,735,809
------------ ------------
14,534,018 13,386,716
Less- Accumulated depreciation (6,503,585) (5,313,690)
------------ ------------
Net property, plant
and equipment 8,030,433 8,073,026
------------ ------------
OTHER ASSETS:
Investment in joint venture
(Notes 2 and 6) 250,000 --
Deferred financing costs (Note 2) 164,394 184,306
Federal income tax deposit (Note 2) 371,548 108,118
Other 460,381 433,736
------------ ------------
Total other assets 1,246,323 726,160
------------ ------------
$ 34,386,152 $ 31,476,934
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1 9 9 6 1 9 9 5
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term notes payable (Note 3) $ -- $ 3,208,629
Current portion of long-term debt (Note 3) 1,016,000 984,000
Accounts payable (Note 2) 12,333,502 11,947,790
Accrued liabilities 851,321 908,456
Dividends payable (Note 2) 2,071,000 2,106,000
------------ ------------
Total current liabilities 16,271,823 19,154,875
------------ ------------
LONG-TERM DEBT (Note 3) 7,068,966 4,099,396
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 4, 6 and 7)
STOCKHOLDERS' EQUITY (Note 3):
Common stock, no par value, 1,000
shares authorized, 100 shares
issued and outstanding 5,000 5,000
Additional paid-in capital 375,953 375,953
Retained earnings 10,664,410 7,841,710
------------ ------------
Total stockholders' equity 11,045,363 8,222,663
------------ ------------
$ 34,386,152 $ 31,476,934
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 8
ALCHEM ALUMINUM, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
-------------- --------------
<S> <C> <C>
NET SALES (Note 2) $ 111,938,171 $ 120,059,970
COST OF SALES 101,965,246 110,429,959
-------------- --------------
Gross profit 9,972,925 9,630,011
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,495,269 2,993,610
-------------- --------------
Operating income 6,477,656 6,636,401
-------------- --------------
OTHER INCOME (EXPENSE):
Cost of borrowed funds (Note 3) (660,241) (705,756)
Interest income 19,769 8,182
Other (241,684) (112,306)
-------------- --------------
Total other income (expense) (882,156) (809,880)
-------------- --------------
NET INCOME 5,595,500 5,826,521
RETAINED EARNINGS, beginning of year 7,841,710 5,587,699
Distributions paid/payable
to stockholders (Note 2) (2,772,800) (3,572,510)
-------------- --------------
RETAINED EARNINGS, end of year $ 10,664,410 $ 7,841,710
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 9
ALCHEM ALUMINUM, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH DUE TO:
1 9 9 6 1 9 9 5
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,595,500 $ 5,826,521
Reconciliation of net income to net cash
provided by operating activities -
Noncash items-
Depreciation and amortization 1,298,112 1,169,927
Provision for doubtful accounts 213,000 5,622
(Gain) loss on disposal of property,
plant and equipment (22,654) 94,131
Changes in certain working capital components-
Accounts receivable (1,227,876) (786,917)
Inventories (1,069,390) (819,389)
Prepaid expenses (55,694) (35,168)
Accounts payable 385,712 (581,047)
Accrued liabilities (57,135) 198,329
Federal income tax deposit paid (263,430) (40,553)
Change in other assets (48,645) (159,269)
------------ ------------
Cash provided by operating activities 4,747,500 4,872,187
------------ ------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,230,523) (1,990,282)
Proceeds from sale of property, plant and equipment 39,570 28,611
Investment in joint venture (Note 6) (250,000) --
------------ ------------
Cash used in investing activities (1,440,953) (1,961,671)
------------ ------------
FINANCING ACTIVITIES:
Net additions to long-term credit facility 3,925,000 --
Proceeds from issuance of long-term debt 1,877,053 --
Repayment of long-term debt (2,800,483) (1,003,880)
Distributions paid to stockholders (Note 2) (2,807,800) (1,466,510)
Net repayment of short-term notes payable (3,208,629) (372,292)
------------ ------------
Cash used in financing activities (3,014,859) (2,842,682)
------------ ------------
INCREASE IN CASH 291,688 67,834
CASH - beginning of period 269,744 201,910
------------ ------------
CASH - end of period $ 561,432 $ 269,744
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 10
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(1) THE COMPANY
The principal business of Alchem Aluminum, Inc. (the Company) is the
processing of aluminum scrap into specification aluminum alloys.
The Company converts the scrap into molten metal in furnaces at a
Company-owned and operated facility which it then delivers to
customers in molten form or ingots. A small percentage of the
Company's processing capacity is utilized to recycle
customer-owned materials and to charge a fee for this service (a
service called "tolling"). The balance of the Company's business
involves the purchase of scrap for processing and recycling by the
Company for subsequent resale ("buy/sell" business).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Inventories
The Company's policy is to value inventories at the lower
of cost or market using the last-in, first-out (LIFO) method.
Inventories, which include material, labor and manufacturing
overhead costs, consist of the following as of October 31:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
------------ ------------
<S> <C> <C>
Raw materials $ 9,019,934 $ 6,763,865
Finished goods 3,725,984 6,664,098
------------ ------------
12,745,918 13,427,963
Less- LIFO reserve (2,465,912) (4,217,347)
------------ ------------
$ 10,280,006 $ 9,210,616
============ ============
</TABLE>
Depreciation
Property, plant and equipment are carried at cost. Maintenance,
repairs and minor replacements are expensed as incurred. When
property, plant or equipment is retired or otherwise disposed
of, the related cost and accumulated depreciation are removed
from the respective accounts. Any gain or loss on disposition
is credited or charged to income.
Property, plant and equipment are depreciated over the estimated
useful lives of the related assets using the straight-line
method for financial reporting purposes and primarily
accelerated methods for income tax reporting purposes.
F-6
<PAGE> 11
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Assigned useful lives for financial reporting purposes are as
follows:
Land improvements 10-20 years
Buildings and improvements 15-40 years
Machinery and equipment 3-10 years
For the years ended October 31, 1996 and 1995, depreciation
expense was $1,256,202 and $1,098,857, respectively.
Investment in Joint Venture
The investment in joint venture is accounted for using the equity
method, under which the Company's share of earnings is
reflected in income as earned and dividends are credited
against the investment in joint venture when received.
Deferred Financing Costs
Deferred financing costs relating to long-term debt issuances are
amortized over the repayment period of the related debt.
Income Taxes
The Company has elected to be taxed as an S corporation under the
applicable sections of the Internal Revenue Code. Accordingly,
no provisions for Federal or state income taxes have been
provided as the Company's stockholders are personally liable
for income taxes on their respective share of taxable income.
Due to its selection of a year-end other than the calendar year,
the Company paid a deposit to the Internal Revenue Service.
The deposit is adjusted annually based upon the Company's
income for income tax reporting purposes and is reported as a
component of other assets in the accompanying balance sheets.
Accounts Payable
As of October 31, 1996 and 1995, approximately $279,000 and
$950,000, respectively, of outstanding checks in excess of the
Company's disbursement account balance are included in accounts
payable in the accompanying balance sheets.
Dividend Policy
It is the Company's policy to declare dividends in order to
provide funds to stockholders for the payment of income taxes
as discussed above. In accordance with this policy, the
Company declared dividends of $2,071,000 and $2,106,000 as of
October 31, 1996 and 1995, respectively, which will not be
paid until after year-end. These amounts are reflected as
dividends payable on the accompanying balance sheets.
F-7
<PAGE> 12
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Concentration and Credit Risk
A majority of the Company's sales and trade accounts receivable
are attributable to companies in the United States automotive
industry. For the years ended October 31, 1996 and 1995, sales
to four customers represented 45% and 52% of total sales,
respectively. As of October 31, 1996 and 1995, 46% and 41%,
respectively, of the trade accounts receivable are from these
four customers. 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 low.
Derivatives
The Company sometimes uses forward contracts to hedge the effect
of price changes on aluminum for which it has future fixed
price sales commitments. Gains or losses on these contracts
are recognized when the related hedged transaction occurs.
Use of Estimates
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 and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each category of the Company's financial
instruments.
Cash and short-term financial instruments
The carrying amount approximates fair value due to the
short maturity of these instruments.
Long-term debt
The fair value has been estimated using the expected future
cash flows discounted at market interest rates. The
carrying amount approximates fair value.
F-8
<PAGE> 13
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Statements of Cash Flows
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
--------- ---------
<S> <C> <C>
Cash paid for -
Cost of borrowed funds $ 652,000 $ 708,000
Michigan Single Business Tax $ 113,000 $ 117,000
</TABLE>
(3) FINANCING ARRANGEMENTS
Short-term notes payable included in the accompanying balance sheets
are borrowings against bank line of credit arrangements under
which the Company may borrow up to $10,000,000 at the bank's prime
interest rate (8.75% as of October 31, 1995). The outstanding
notes under the line of credit arrangements are due on demand and
are collateralized by trade accounts receivable, inventories and
certain property, plant and equipment. These notes were repaid and
the line of credit arrangements was terminated by the Company in
September 1996.
F-9
<PAGE> 14
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
As of October 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- ---------
<S> <C> <C>
Revolving credit notes payable to bank, due in June 1999
(maturity date extendable by the bank in one-year increments
on each anniversary date), maximum commitment of $15,000,000,
rate of interest is variable (from 7.1% to 7.4% as of October
31, 1996), collateralized by all the Company's assets. $3,925,000 $ -
Note payable to bank, due in July 2003, payable in quarterly
installments of $55,357 plus interest at a variable rate (7.3%
as of October 31, 1996), collateralized by all the Company's
assets. 1,550,000 -
Note payable to bank, payable in quarterly installments of
$7,500 through April 2003 with the remainder payable in July
2003, plus interest at a variable rate (7.3% as of October 31,
1996), collateralized by all the Company's assets. 300,000 -
Note payable to bank, due in July 2003, maximum amount not to
exceed the lesser of $4,000,000 or the Company's investment in
joint venture (see Note 6), draws to occur in 1997, payable in
quarterly installments plus interest at a variable rate,
collateralized by all the Company's assets. - -
Note payable to bank, due in July 2003, maximum amount not to
exceed $2,100,000, draws to occur in 1997, payable in
quarterly installments plus interest at a variable rate,
collateralized by all the Company's assets. - -
Mortgage note payable under an Economic Development Corporation
Bond issuance, due in September 2005, payable in quarterly
installments of $87,500 through 1997 and $18,750 from
1998-2005, plus interest at a variable rate (3.7% as of
October 31, 1996). 950,000 1,300,000
</TABLE>
F-10
<PAGE> 15
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- ---------
<S> <C> <C>
Mortgage note payable under an Economic Development Corporation
Bond issuance, due in June 2007, payable in annual
installments of $290,000 from 1994-1999, $35,000 from
2000-2003, and $30,000 from 2004 to 2007, plus interest at a
variable rate (3.7% as of October 31, 1996) $ 1,130,000 $1,420,000
Mortgage note payable under a Michigan Job Development Authority
Pollution Control Bond issuance, due in May 2000, payable in
monthly installments of $5,619 including interest at 7.45% 208,336 257,101
Note payable under a municipal Small City
Loan issuance, paid in September 1996 - 34,328
Note payable to bank, paid in September 1996 - 1,750,000
Mortgage note with bank, paid in September 1996 - 318,622
Other 21,630 3,345
----------- ----------
8,084,966 5,083,396
Less- current portion (1,016,000) (984,000)
----------- ----------
$ 7,068,966 $4,099,396
=========== ==========
</TABLE>
In September 1996, the Company entered into a new loan agreement, the
result of which is the revolving credit notes payable to bank and
the four notes payable to bank due in July 2003, described above.
This agreement calls for variable interest rates indexed,
according to formulas defined in the agreement, to the London
Interbank Offered Rate (LIBOR), the bank's prime rate or the
federal funds rate. The Company is charged a commitment fee on the
unused portion of the revolving credit notes. This fee is
calculated using a variable rate as defined in the agreement. The
proceeds of this new agreement were used to retire the Company's
short-term line of credit facility as well as the note payable to
bank and mortgage note with bank. No material gain or loss was
recognized on this transaction.
F-11
<PAGE> 16
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Certain debt covenants provide for, among other things, minimum
tangible net worth, liabilities to net worth ratio, working
capital and cash flow coverage ratio. In addition, among other
things, the Company is restricted from liquidation, merger, sale
of a substantial portion of its assets, entering into certain
transactions with its officers, directors or stockholders, and
investing in any other business, except as approved by the bank.
The mortgage notes payable under Economic Development Corporation
Bonds are collateralized by all the Company's assets. Principal
and interest payments due to the holders of the Economic
Development bonds are assured by bank issued letters of credit
through September 2005 and 2007. The Company pays a letter of
credit fee of 1.125% which is included in its cost of borrowed
funds.
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997 $1,016,000
1998 682,000
1999 4,607,000
2000 400,000
2001 361,000
Thereafter 1,018,966
----------
$8,084,966
==========
</TABLE>
(4) LEASE COMMITMENTS
The Company has operating leases for certain machinery and equipment
used in its operations, with certain leases containing renewal
options. The terms of these leases range between 2 and 6 years.
Total rent expense was $577,000 in 1996 and $438,000 in 1995.
Future minimum lease payments under noncancellable operating leases
are as follows:
<TABLE>
<S> <C>
1997 $277,000
1998 58,000
1999 19,000
2000 5,000
2001 -
--------
$359,000
========
</TABLE>
F-12
<PAGE> 17
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan which allows for employee
contributions of up to 15% of compensation. The Company may make
matching contributions equal to a discretionary percentage (50% in
1996 and 1995) of up to 6% of compensation contributed by
employees. The Company may also make an additional year-end
matching contribution equal to a discretionary percentage (0% in
1996 and 1995) of up to the first 6% of compensation contributed
by employees. The Company expensed approximately $64,000 and
$58,000 for contributions in 1996 and 1995, respectively.
(6) JOINT VENTURE
In October 1995, the Company entered into an agreement with IMCO
Recycling, Inc. (IMCO) to form a joint venture that will build a
new aluminum recycling plant. The plant is expected to begin
production in early 1997 and have an annual rated capacity of 150
million pounds. The facility is expected to cost approximately $16
million. Under this agreement, IMCO will own 75 percent of the
joint venture and Alchem will own 25 percent. Alchem's share of
the joint venture's earnings will be calculated using a formula as
defined in the agreement. No equity in net income of joint venture
was recorded in 1996, as the joint venture had not started
operations prior to October 31, 1996. Alchem has agreed to supply
the joint venture with approximately half its scrap requirements
under tolling arrangements whereby the Company will pay toll
charges on the converted material at prices calculated as defined
in the agreement.
During fiscal 1996, Alchem made a $250,000 cash investment in the
joint venture. Additional investments are expected in fiscal 1997
as the construction of the plant continues.
(7) FINANCIAL INSTRUMENTS
The Company sometimes enters into forward contracts to hedge the
effect of aluminum price changes on future fixed price sales
commitments. As of October 31, 1996, the Company had outstanding
forward contracts to purchase 400 metric tons of aluminum at
prices per metric ton ranging from $1,387 to $1,882. These
contracts mature at various times throughout 1997, corresponding
to deliveries under fixed price sales commitments. The deferred
loss on these contracts was $17,000 at October 31, 1996. As of
October 31, 1995, the Company had outstanding forward contracts to
purchase 840 metric tons of aluminum at prices per metric ton
ranging from $1,755 to $1,882. These contracts matured at various
times through 1996, corresponding to deliveries under fixed price
sales commitments. The deferred loss on these contracts was
$145,000 at October 31, 1995.
F-13
<PAGE> 18
ALCHEM ALUMINUM, INC.
BALANCE SHEET
AS OF JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
A S S E T S
----------------
<S> <C>
CURRENT ASSETS:
Cash $ 1,032,506
Trade accounts receivable 16,603,161
Inventories (Note 2) 13,647,934
Prepaid expenses 321,311
------------
Total current assets 31,604,912
------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and improvements 905,444
Buildings and improvements 4,818,451
Machinery and equipment 10,804,825
------------
16,528,720
Less- Accumulated depreciation (7,414,247)
------------
Net property, plant
and equipment 9,114,473
------------
OTHER ASSETS:
Investment in joint venture 3,854,875
Deferred financing costs 157,946
Federal income tax deposit 388,409
Other 473,147
------------
Total other assets 4,874,377
------------
$ 45,593,762
============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 955,137
Accounts payable 19,431,278
Accrued liabilities 746,060
------------
Total current liabilities 21,132,475
------------
LONG-TERM DEBT 11,986,897
------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 15,000
shares authorized, 10,000 shares
issued and outstanding (Note 5) 10,000
Additional paid-in capital 370,953
Retained earnings 12,093,437
------------
Total stockholders' equity 12,474,390
------------
$ 45,593,762
============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-14
<PAGE> 19
ALCHEM ALUMINUM, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<S> <C>
NET SALES $ 90,626,257
COST OF SALES 85,203,491
------------
Gross profit 5,422,766
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,707,054
------------
Operating income 2,715,712
------------
OTHER INCOME (EXPENSE):
Cost of borrowed funds (470,942)
Interest income 3,700
Other (140,833)
------------
Total other income (expense) (608,075)
------------
NET INCOME 2,107,637
RETAINED EARNINGS, beginning of year 10,664,410
Distributions paid
to stockholders (678,610)
------------
RETAINED EARNINGS, end of year $ 12,093,437
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE> 20
ALCHEM ALUMINUM, INC.
STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH DUE TO:
<S> <C>
OPERATING ACTIVITIES:
Net income $ 2,107,637
Reconciliation of net income to net cash
provided by operating activities-
Noncash items-
Depreciation and amortization 926,396
Provision for doubtful accounts 93,000
Loss on disposal of property,
plant and equipment 4,188
Changes in certain working capital components-
Accounts receivable (2,651,394)
Inventories (3,367,928)
Prepaid expenses (98,120)
Accounts payable 7,097,776
Accrued liabilities (105,261)
Federal income tax deposit paid (16,861)
Change in other assets (22,052)
------------
Cash provided by operating activities 3,967,381
------------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,002,740)
Proceeds from sale of property, plant and equipment 3,850
Investment in joint venture (3,604,875)
------------
Cash used in investing activities (5,603,765)
------------
FINANCING ACTIVITIES:
Net additions to long-term credit facility 2,075,000
Proceeds from issuance of long-term debt 3,300,000
Repayments of long-term debt (517,932)
Distributions paid to stockholders (2,749,610)
------------
Cash provided by financing activities 2,107,458
------------
INCREASE IN CASH 471,074
CASH - beginning of period 561,432
------------
CASH - end of period $ 1,032,506
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-16
<PAGE> 21
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) FINANCIAL STATEMENTS
The financial statements included in this Report are condensed
and unaudited, pursuant to certain rules and regulations of the
Securities and Exchange Commission, but include, in the opinion of
Alchem Aluminum, Inc. (the "Company"), adjustments necessary for a
fair statement of the results for the period indicated, which,
however, are not necessarily indicative of results which may be
expected for the full year.
In connection with the condensed financial statements and notes
included in this Report, reference is made to the Company's
audited financial statements as of October 31, 1996 and 1995, and
for the years then ended, and notes thereto contained elsewhere in
this Report.
(2) INVENTORIES
Inventories consist of the following as of June 30, 1997:
<TABLE>
<S> <C>
Raw materials $14,206,706
Finished goods 4,360,684
-----------
18,567,390
Less- LIFO reserve (4,919,456)
-----------
$13,647,934
===========
</TABLE>
(3) STATEMENT OF CASH FLOWS
Supplemental disclosure of cash flow information for the eight
months ended June 30, 1997, is as follows:
<TABLE>
<CAPTION>
Cash paid for -
<S> <C>
Cost of borrowed funds $406,000
Michigan Single Business Tax $157,000
</TABLE>
(4) FINANCIAL INSTRUMENTS
The Company sometimes enters into forward contracts to hedge the
effect of aluminum price changes on future fixed price sales
commitments. As of June 30, 1997, the Company had outstanding
forward contracts to purchase 150 metric tons of aluminum at a
price per metric ton of $1,387. These contracts mature at various
times throughout 1997, corresponding to deliveries under fixed
price sales commitments. The deferred gain on these contracts was
$31,500 at June 30, 1997.
F-17
<PAGE> 22
ALCHEM ALUMINUM, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited-Continued)
(5) COMMON STOCK
On January 31, 1997, the Company increased the number of common
shares authorized for issuance from 1,000 to 15,000 shares. At the
same time, the Company authorized the exchange of its 100
outstanding shares of voting, no par common stock for 100 shares
of voting, Series A, no par common stock and 9,900 shares of
nonvoting, Series B, no par common stock.
(6) SUBSEQUENT EVENT
In September 1997, the Company entered into a nonbinding letter of
intent with IMCO Recycling, Inc. ("IMCO") to sell all of its
outstanding capital stock in exchange for cash, liabilities to be
assumed by IMCO and IMCO common stock. The sale is expected to be
consummated in late October or early November 1997.
F-18
<PAGE> 23
PRO FORMA FINANCIAL INFORMATION
On September 18, 1997, IMCO Recycling Inc. (the "Company") announced that it
had entered into a non-binding letter of intent to acquire, in a
privately-negotiated transaction, all of the capital stock of Alchem, in
exchange for cash and 1,208,339 shares of Common Stock, $0.10 par value per
share, of the Company. The amount of cash to be paid will be determined by
deducting from $26,250,000, the aggregate amount of Alchem's obligations for
borrowed money outstanding as of the closing date of the acquisition. At
September 30, 1997, the amount of Alchem's indebtedness for borrowed money
outstanding was $13,416,000.
Alchem is a producer of specification aluminum alloys for automotive
manufacturers and their suppliers and has been operating its facility located
in Coldwater, Michigan since 1972. Alchem and the Company have also been
operating under a joint venture agreement entered into in 1995 to construct and
operate an aluminum recycling plant adjacent to Alchem's processing facility in
Coldwater. This facility began operating in February 1997 and is expected to
reach full capacity in October 1997. Assuming that the Alchem Acquisition is
completed, the Company intends to continue operating the business and assets of
Alchem in a similar manner as they were operated prior to the acquisition.
The accompanying unaudited Pro Forma Condensed Consolidated Financial
Statements have been prepared by recording pro forma adjustments to the
historical consolidated financial statements of the Company. The Pro Forma
Condensed Consolidated Balance Sheet as of June 30, 1997 has been prepared as
if the Alchem Acquisition was consummated on June 30, 1997. The Pro Forma
Condensed Consolidated Statements of Earnings for the year ended December 31,
1996 and for the six months ended June 30, 1997 have been prepared as if the
January 1997 acquisitions of IMSAMET, Inc. ("IMSAMET") and Rock Creek Aluminum,
Inc. ("Rock Creek"), and the Alchem Acquisition, had been consummated on
January 1, 1996.
The Pro Forma Condensed Consolidated Statement of Earnings for the year ended
December 31, 1996 has been derived from (i) the historical audited consolidated
financial statements of the Company for the year ended December 31, 1996, (ii)
the historical audited consolidated financial statements of IMSAMET for the
year ended December 31, 1996, (iii) the historical unaudited financial
statements of Rock Creek for the year ended December 31, 1996 and (iv) the
audited financial statements of Alchem for its fiscal year ended October 31,
1996.
The Pro Forma Condensed Consolidated Statement of Earnings for the six months
ended June 30, 1997 and the Pro Forma Condensed Consolidated Balance Sheet at
June 30, 1997 have been derived from (i) the historical unaudited consolidated
financial statements of the Company as of and for the six-month period ended
June 30, 1997, and (ii) the historical unaudited financial statements of Alchem
as of and for the eight-month period ended June 30, 1997.
The Pro Forma Condensed Consolidated Financial Statements are not necessarily
indicative of the financial position or results of operations that would have
occurred had the transactions been effected on the assumed dates. Additionally,
future results may vary significantly from the results reflected in the Pro
Forma Condensed
F-19
<PAGE> 24
Consolidated Statements of Earnings due to normal fluctuations in operating
levels, changes in prices, future transactions and other factors.
The historical and pending acquisitions have been accounted for by the purchase
method. Accordingly, the assets and liabilities of IMSAMET, Rock Creek and
Alchem have been adjusted to their estimated fair values, as determined by the
management of the Company, to reflect the allocation of the costs of the
acquisitions by the Company.
F-20
<PAGE> 25
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR IMSAMET AND ROCK CREEK ACQUISITIONS
--------------------------------------------------------
IMSAMET ROCK CREEK
---------------------- ----------------------
COMPANY PRO FORMA PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 210,871 $ 37,399 $ 54,072 $(3,867)B1 $298,475
Cost of sales 185,333 31,116 $(1,272)A1 49,501 (3,867)B1 261,011
200 A2
--------- --------- ------- --------- ------- --------
Gross profit 25,538 6,283 1,072 4,571 -- 37,464
Selling, general and
administrative expense 11,774 2,336 (902)A3 2,846 145 B2 16,823
624 A4
Interest expense 3,421 1,533 3,508 A5 606 9,068
Interest income (623) -- -- (623)
Equity in earnings of affiliates 114 (150) -- (36)
--------- --------- ------- --------- ------- --------
Earnings before provision
for income taxes and
minority interests 10,852 2,564 (2,158) 1,119 (145) 12,232
Provision for income taxes 4,132 745 (430)A6 26 359 B3 4,832
--------- --------- ------- --------- ------- --------
Earnings before minority interests 6,720 1,819 (1,728) 1,093 (504) 7,400
Minority interests, net of
provision for income taxes -- (316) (3)A7 -- -- (319)
--------- --------- ------- --------- ------- --------
Net earnings $ 6,720 $ 1,503 $(1,731) $ 1,093 $ (504) $ 7,081
--------- --------- ------- --------- ------- --------
Net earnings per common share $ 0.55 $ 0.55
========= ========
Weighted average common and common
equivalent shares outstanding 12,309 618 B4 12,927
========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
------------------------------------
HISTORICAL
YEAR ENDED
OCTOBER 31, PRO FORMA PRO
1996 ADJUSTMENTS FORMA
---------- ------------ --------
<S> <C> <C> <C>
Revenues $ 111,938 $ (1,477)C3 $408,936
Cost of sales 101,965 (1,477)C3 363,550
300 C4
1,751 C1
---------- --------- --------
Gross profit 9,973 (2,051) 45,386
Selling, general and
administrative expense 3,737 289 C5 20,849
Interest expense 660 1,256 C6 10,984
Interest income (20) (643)
Equity in earnings of affiliates -- (36)
---------- --------- --------
Earnings before provision
for income taxes and
minority interests 5,596 (3,596) 14,232
Provision for income taxes -- 790 C7 5,622
---------- --------- --------
Earnings before minority interests 5,596 (4,386) 8,610
Minority interests, net of
provision for income taxes -- (319)
---------- --------- --------
Net earnings $ 5,596 $ (4,386) $ 8,291
========== ========== ========
Net earnings per common share $ 0.59
========
Weighted average common and common
equivalent shares outstanding 1,208 C10 14,135
========= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-21
<PAGE> 26
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
----------------------------------------------------------------------------------
OTHER PRO FORMA ADJUSTMENTS
HISTORICAL PRO FORMA PRO FORMA --------------------------- PRO FORMA
EIGHT ADJUSTMENT EIGHT ELIMINATE SIX
MONTHS TO CONFORM MONTHS TWO MONTHS MONTHS
ENDED INVENTORY ENDED ENDED ENDED
COMPANY JUNE 30, ACCOUNTING JUNE 30, DECEMBER 31, JUNE 30,
HISTORICAL 1997 METHODS (C1) 1997 1996 (C2) OTHER 1997
---------- ---------- ------------ --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $159,127 $90,626 $90,626 $(16,263) $(1,683) C3 $231,807
Cost of sales 136,850 85,203 $(2,453) 82,750 (14,932) (1,683) C3 203,135
150 C4
-------- ------- ------- ------- --------- ------- --------
Gross profit 22,277 5,423 2,453 7,876 (1,331) (150) 28,672
Selling, general and administrative
expense 8,799 2,848 2,848 (598) 146 C5 11,195
Interest expense 3,659 471 471 (81) 621 C6 4,670
Interest income (179) (4) (4) -- (183)
Equity in earnings of affiliates (90) -- -- -- (90)
-------- ------- ------- ------- --------- ------- --------
Earnings before provision for income
taxes and minority interests 10,088 2,108 2,453 4,561 (652) (917) 13,080
Provision for income taxes 4,033 -- -- -- 1,199 C7 5,232
-------- ------- ------- ------- --------- ------- --------
Earnings before minority interests 6,055 2,108 2,453 4,561 (652) (2,116) 7,848
Minority interests, net of provision
for income taxes (208) -- -- -- (208)
-------- ------- ------- ------- --------- ------- --------
Net earnings $ 5,847 $ 2,108 $ 2,453 $ 4,561 $ (652) $(2,116) $ 7,640
======== ======= ======= ======= ========= ======= ========
Net earnings per common share $ 0.46 $ 0.55
======== ========
Weighted average common and common
equivalent shares outstanding 12,732 1,208 C10 13,940
======== ======= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-22
<PAGE> 27
IMCO RECYCLING, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
------------------------------------------
COMPANY PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,781 $ 1,033 $ 26,250 C8 $ 3,814
(12,942)C11
(13,308)C10
Accounts receivable 46,927 16,603 (348)C12 63,182
Inventories 16,596 13,648 4,919 C14 35,163
Deferred income taxes 1,567 - 1,567
Other current assets 2,128 321 2,449
--------- --------- --------- ---------
Total current assets 69,999 31,605 4,571 106,175
Property and equipment, net 120,022 9,114 3,000 C14 132,136
Intangible assets, net 57,288 158 2,000 C13 69,611
10,165 C14
Investments in affiliates 14,704 3,855 30,558 C10 14,759
(30,558)C14
(3,800)C15
Other assets, net 5,408 862 6,270
--------- --------- --------- ---------
$ 267,421 $ 45,594 $ 15,936 $ 328,951
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 21,860 $ 19,432 $ (348)C12 $ 40,944
Accrued liabilities 5,157 746 500 C13 6,403
Current maturities of long-term debt 7,614 955 (955)C11 273
(7,341)C9
--------- --------- --------- ---------
Total current liabilities 34,631 21,133 (8,144) 47,620
Long-term debt 115,391 11,987 26,250 C8 148,982
7,341 C9
(11,987)C11
Other long-term liabilities 6,838 - 6,838
Deferred income taxes 6,214 - 1,500 C13 7,714
Minority interests 5,459 - (3,800)C15 1,659
Stockholders' equity 98,888 12,474 17,250 C10 116,138
(12,474)C14
--------- --------- --------- ----------
$ 267,421 $ 45,594 $ 15,936 $ 328,951
========= ========= ========= ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-23
<PAGE> 28
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE IMSAMET ACQUISITION
In January 1997, the Company acquired all of the outstanding capital
stock of IMSAMET, a wholly owned subsidiary of EnviroSource, Inc., for
approximately $58,000,000 in cash, not including acquisition costs. The
purchase price was funded through borrowings under the Company's
long-term senior debt facility agreement (the "Credit Agreement"). The
acquisition was accounted for using the purchase method of accounting.
The pro forma adjustments to the historical statement of earnings to
reflect the IMSAMET acquisition as if it had been consummated on January
1, 1996 are as follows:
A1. To reverse management fees charged to IMSAMET by its former
parent.
A2. To reflect additional depreciation expense based on the fair
value of the assets acquired. Pro forma depreciation is
computed on a straight-line basis over the estimated useful
lives of the assets acquired.
A3. To eliminate expenses related to the IMSAMET corporate office,
which would not have been incurred.
A4. To record the net increase in amortization expense resulting
from goodwill acquired and from debt issuance costs incurred
to obtain the Credit Agreement. Goodwill is amortized on a
straight-line basis over a 40 year life, and debt issuance
costs are amortized over the seven- year term of the Credit
Agreement.
A5. To adjust interest expense to (i) eliminate interest expense
on the existing debt of the Company which was retired
($3,120,000), (ii) eliminate interest expense incurred by
IMSAMET on debt to its former parent ($1,533,000), and (iii)
record interest expense on borrowings under the Credit
Agreement ($7,927,000). Pro forma interest expense on
borrowings under the Credit Agreement was computed using the
applicable LIBOR rate plus 1.5%. An increase of .125% in the
assumed interest rate would increase pro forma interest
expense related to the IMSAMET acquisition by $138,000 for the
year ended December 31, 1996.
A6. To adjust income tax expense based on the combined effective
federal and state income tax rates.
A7. To adjust minority interests related to additional depreciation
expense.
F-24
<PAGE> 29
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
B. PRO FORMA ADJUSTMENTS FOR THE ROCK CREEK ACQUISITION
In January 1997, the Company acquired, in a privately negotiated
transaction, all of the outstanding capital stock of Rock Creek in
exchange for 618,137 shares of the Company's common stock. The
acquisition was accounted for using the purchase method of accounting.
The pro forma adjustments to the historical statement of earnings to
reflect the Rock Creek acquisition as if it had been consummated on
January 1, 1996 are as follows:
B1. To eliminate sales and cost of sales for transactions between
Rock Creek and the Company.
B2. To adjust amortization expense for the goodwill acquired.
Goodwill is amortized on a straight-line basis over a 40 year
life.
B3. To adjust income tax expense based on the combined effective
federal and state income tax rates.
B4. To reflect the issuance of 618,137 shares of the Company's
common stock in the transaction.
C. PRO FORMA ADJUSTMENTS FOR THE ALCHEM ACQUISITION
In September 1997, the Company announced that it had entered into a
non-binding letter of intent to acquire, in a privately negotiated
transaction, all of the capital stock of Alchem in exchange for cash and
1,208,339 shares of common stock. The amount of cash to be paid will be
determined by deducting the aggregate amount of Alchem's obligations
for borrowed money outstanding as of the closing date of the acquisition
from $26,250,000. At June 30, 1997, the amount of Alchem's indebtedness
for borrowed money outstanding was $12,942,000. Assuming that such
amount of Alchem indebtedness is outstanding at the closing date, the
total cash to be paid by the Company to Alchem would be $13,308,000.
The cash portion of the acquisition price and the repayment of Alchem's
indebtedness is assumed to be funded by borrowings under the proposed
$175 million reducing revolving credit facility ("Reducing Revolving
Facility"). The acquisition, which is expected to close in November
1997, will be accounted for using the purchase method of accounting. The
pro forma adjustments to the historical financial statements for the
pending Alchem Acquisition are as follows:
C1. To adjust cost of sales to conform Alchem's accounting policy
for inventory (LIFO) to a method approximating the Company's
accounting policy (average cost).
C2. To eliminate the results of Alchem's operations for the two
months ended December 31, 1996 to conform with the Company's
interim accounting period.
F-25
<PAGE> 30
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
C3. To eliminate sales and cost of sales for transactions between
Alchem and the Company and Rock Creek.
C4. To reflect additional depreciation expense based on the fair
value of the assets acquired. Pro forma depreciation is
computed on a straight-line basis over the estimated useful
lives of the assets acquired.
C5. To adjust amortization expense for the goodwill acquired and
Alchem's debt issuance costs written-off. Goodwill is
amortized on a straight-line basis over a 40 year life.
C6. To record the net increase in interest expense due to assumed
borrowings of $26,250,000 under the Reducing Revolving
Facility using the applicable LIBOR rate plus 1.5%, less
interest expense on the Alchem indebtedness retired. An
increase of .125% in the assumed interest rate would increase
pro forma interest expense related to the Alchem Acquisition
by $32,000 and $16,000 for the year ended December 31, 1996
and the six months ended June 30, 1997, respectively.
C7. To adjust income tax expense based on the combined effective
federal and state income tax rates.
C8. To record borrowings of $26,250,000 under the Reducing
Revolving Facility to fund the cash portion of the purchase
price and repayment of Alchem's indebtedness.
C9. To reclassify the current portion of borrowings under the
Credit Agreement to long-term pursuant to the proposed terms
of the Reducing Revolving Facility.
C10. To record the acquisition of the capital stock of Alchem for
1,208,339 shares of the Company's common stock and $13,308,000
in cash. The shares of common stock to be issued were valued
at $19.0344 per share (which is the average closing price for
the Company's common stock for the 20 consecutive trading days
preceding September 15, 1997, the date of the letter of
intent), less a 25% discount to reflect the contractual
restrictions on the resale of such shares. The actual amount
of cash to be paid will be determined by subtracting Alchem's
actual outstanding obligations for borrowed money at the date
of closing from $26,250,000.
C11. To record the repayment of the Alchem indebtedness.
C12. To eliminate accounts receivable and accounts payable between
Alchem and the Company.
C13. To record the accrual of severance pay, deferred income taxes
and other merger related costs.
F-26
<PAGE> 31
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
C14. To adjust assets and liabilities under the purchase method of
accounting based on the Company's purchase price. The
Company's purchase price has been allocated to the
consolidated assets and liabilities of Alchem based on
preliminary estimates of fair values with the remaining
purchase price allocated to goodwill. The information
presented herein may differ from the actual purchase price
allocation.
The preliminary allocation of the purchase price included in
the pro forma balance sheet is summarized as follows (in
thousands):
Working capital $ 14,891
Property and equipment 12,114
Goodwill 12,323
Other noncurrent assets 4,717
Noncurrent liabilities (13,487)
--------
Total $ 30,558
========
C15. To eliminate Alchem's investment and the Company's minority
interest in the joint venture for the Coldwater, Michigan
aluminum recycling plant.
F-27
<PAGE> 32
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
** 10.1 Letter of Intent dated September 15, 1997, by and between IMCO
Recycling, Inc. and Alchem Aluminum, Inc.
** 10.2 Amendment to Letter of Intent dated September 29, 1997.
* 23.1 Consent of Arthur Andersen LLP.
- ---------------------
* FILED HEREWITH.
** PREVIOUSLY FILED.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated December 9, 1996, on the financial statements of
Alchem Aluminum, Inc. as of October 31, 1996 and 1995, and for the years then
ended, included in IMCO Recycling, Inc.'s current report on Form 8-K/A dated
October 9, 1997, into IMCO Recycling, Inc.'s previously filed Registration
Statements, File Nos. 33-26641, 33-34745, 33-76780, 333-00075, and 333-07091.
ARTHUR ANDERSEN LLP
Toledo, Ohio,
October 8, 1997.
