<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A-3
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
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
*(a) Audited Financial Statements of Business Acquired:
Financial Statements of Alchem Aluminum, Inc.
o Reports of Independent Public Accountants
o Balance Sheets as of October 31, 1997 and 1996
o Statements of Income for the years ended October 31, 1997 and 1996
o Statements of Stockholders' Equity for the years ended October 31,
1997 and 1996
o Statements of Cash Flows for the years ended October 31, 1997 and
1996
o Notes to Financial Statements
*(b) Pro Forma Financial Information:
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 nine
months ended September 30, 1997
o Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1997
o Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits:
** 10.1 Letter of Intent dated September 15, 1997, by and between the
Company and Alchem.
** 10.2 Amendment to Letter of Intent dated September 29, 1997.
** 10.3 Agreement and Plan of Merger by and among the Company, IMCO
Recycling of Coldwater Inc., Alchem and the Shareholders of
Alchem dated November 14, 1997.
** 10.4 Registration Rights Agreement by and among the Company and the
Shareholders of Alchem dated November 14, 1997.
*** 10.5 Amended and Restated Credit Agreement by and among the
Company, the Subsidiary Guarantors named therein, the Lenders
thereunder, Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, as manager and syndication agent, and
Texas Commerce Bank National Association, as administrative
agent, dated November 5, 1997 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 and incorporated herein by reference).
* 23.1 Consent of Arthur Andersen LLP.
* 23.2 Consent of Ernst & Young LLP.
- -----------------
* Filed herewith
** Previously Filed in this Current Report on Form 8-K
*** Previously Filed in another Report Filed with the Securities and Exchange
Commission
1
<PAGE> 3
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: January 9, 1998
2
<PAGE> 4
Alchem Aluminum, Inc.
Financial Statements
Years ended October 31, 1997 and 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Reports of Independent Auditors...................................................................... F-2
Audited Financial Statements
Balance Sheets....................................................................................... F-4
Statements of Income................................................................................. F-6
Statements of Cash Flows............................................................................. F-7
Statements of Stockholders' Equity................................................................... F-8
Notes to Financial Statements........................................................................ F-9
</TABLE>
F-1
<PAGE> 5
Report of Independent Auditors
The Board of Directors
Alchem Aluminum, Inc.
We have audited the balance sheet of Alchem Aluminum, Inc. (the Company) as of
October 31, 1997, and the related statements of income, cash flows, and
stockholders' equity for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of Alchem Aluminum, Inc. as of
October 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
December 5, 1997
Dallas, Texas
F-2
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Alchem Aluminum, Inc.:
We have audited the accompanying balance sheet of ALCHEM ALUMINUM, INC. (an
Indiana corporation) as of October 31, 1996, and the related statements of
income, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Aluminium, Inc. as of
October 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Toledo, Ohio,
December 9, 1996.
F-3
<PAGE> 7
Alchem Aluminum, Inc.
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31
1997 1996
---------------------------------
<S> <C> <C>
ASSETS (Note 3)
Current assets:
Cash (Note 2) $ 363,031 $ 561,432
Trade accounts receivable, net of allowance for doubtful accounts
of $0 in 1997 and $0 in 1996 (Note 2) 17,644,039 14,044,767
Advance to officer 1,692,500 --
Accounts receivable - other 271,853 --
Inventories (Note 2) 14,390,804 10,280,006
Prepaid expenses 178,872 223,191
---------------- --------------
Total current assets 34,541,099 25,109,396
Property, plant, and equipment (Note 2):
Land and improvements 876,441 809,474
Buildings and improvements 4,742,426 3,962,877
Machinery and equipment 10,284,955 9,761,667
---------------- --------------
15,903,822 14,534,018
Less accumulated depreciation (6,502,674) (6,503,585)
---------------- --------------
Net property, plant, and equipment 9,401,148 8,030,433
Investment in joint venture (Notes 2 and 6) 4,000,000 250,000
Other assets (Note 2) 1,673,303 996,323
---------------- --------------
Total assets $ 49,615,550 $ 34,386,152
================ ==============
</TABLE>
See accompanying notes.
F-4
<PAGE> 8
Alchem Aluminum, Inc.
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31
1997 1996
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 3) $ 1,181,546 $ 1,016,000
Accounts payable (Note 2) 25,088,311 12,333,502
Accrued liabilities 739,969 738,854
Dividends payable (Note 2) -- 2,071,000
------------ -----------
Total current liabilities 27,009,826 16,159,356
Long-term debt (Notes 2 and 3) 15,288,532 7,068,966
Deferred Compensation 132,552 112,467
Commitments and contingencies (Notes 4, 7 and 10) -- --
Stockholders' equity (Notes 2 and 8): Common stock, no par value:
Authorized shares - 1,000 at October 31, 1996 and 15,000 at
October 31, 1997 issued and outstanding shares - 100 at
October 31, 1996 and 11,961 at October 31, 1997, at stated value 10,000 5,000
Additional paid-in capital 5,370,953 375,953
Retained earnings 1,803,687 10,664,410
------------ -----------
Total stockholders' equity 7,184,640 11,045,363
------------ -----------
Total liabilities and stockholders' equity $ 49,615,550 $34,386,152
============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 9
Alchem Aluminum, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
------------------------------
<S> <C> <C>
Net sales (Note 2) $142,140,075 $111,938,171
Cost of sales 133,547,045 101,965,246
------------ ------------
Gross margin 8,593,030 9,972,925
Selling, general, and administrative expenses 9,419,711 3,495,269
------------ ------------
Operating income (loss) (826,681) 6,477,656
Other income (expense):
Interest expense (Note 3) (768,699) (660,241)
Interest income 13,933 19,769
Other (1,214,862) (241,684)
------------ ------------
Total other income (expense) (1,969,628) (882,156)
------------ ------------
Net income (loss) $ (2,796,309) $ 5,595,500
============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 10
Alchem Aluminum, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,796,309) $ 5,595,500
Reconciliation of net income (loss) to net cash provided by operating
activities:
Bonus paid in common stock (Note 9) 5,000,000 --
Depreciation and amortization (Note 2) 1,555,273 1,298,112
Provision for doubtful accounts 1,048,097 213,000
(Gain) loss on disposal of PP&E 17,056 (22,654)
Changes in operating assets and liabilities:
Accounts receivable (6,611,722) (1,227,876)
Inventories (4,110,798) (1,069,390)
Prepaid expenses 44,319 (55,694)
Accounts payable 12,754,809 385,712
Accrued liabilities 1,115 (57,135)
Federal income tax deposit paid (Note 2) (16,861) (263,430)
Changes in other liabilities 20,085 --
Changes in other assets (680,216) (48,645)
--------------- ------------
Cash provided by operating activities 6,224,848 4,747,500
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (3,061,425) (1,230,523)
Proceeds from sale of property, plant, and equipment 138,478 39,570
Investment in joint venture (Note 6) (3,750,000) (250,000)
--------------- ------------
Cash used in investing activities (6,672,947) (1,440,953)
FINANCING ACTIVITIES
Net additions to long-term credit facility -- 3,925,000
Proceeds from issuance of long-term debt 9,401,112 1,877,053
Repayment of long-term debt (1,016,000) (2,800,483)
Distributions paid to stockholders (Note 2) (8,135,414) (2,807,800)
Net repayment of short-term notes payable -- (3,208,629)
--------------- ------------
Cash provided by (used in) financing activities 249,698 (3,014,859)
Increase (Decrease) in cash (198,401) 291,688
Cash at beginning of period 561,432 269,744
--------------- ------------
Cash at end of period $ 363,031 $ 561,432
=============== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 11
Alchem Aluminum, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at 10/31/95 $ 5,000 $ 375,953 $ 7,841,710 $ 8,222,663
Net Income -- -- 5,595,500 5,595,500
Distributions -- -- (2,772,800) (2,772,800)
------------ ------------ ------------ ------------
Balance at 10/31/96 5,000 375,953 10,664,410 11,045,363
Net loss -- -- (2,796,309) (2,796,309)
Distributions -- -- (6,064,414) (6,064,414)
Stock Bonus (Note 9) 5,000 4,995,000 -- 5,000,000
------------ ------------ ------------ ------------
Balance at 10/31/97 $ 10,000 $ 5,370,953 $ 1,803,687 $ 7,184,640
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-8
<PAGE> 12
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>
1997 1996
----------------------------------
<S> <C> <C>
Raw materials $ 14,581,472 $ 9,019,934
Finished goods 5,940,764 3,725,984
---------------- ---------------
20,522,236 12,745,918
Less LIFO reserve (6,131,432) (2,465,912)
---------------- ---------------
$ 14,390,804 $ 10,280,006
================ ===============
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
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-9
<PAGE> 13
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (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, 1997 and 1996, depreciation expense was
$1,535,176 and $1,256,202, 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
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, 1997 and 1996, approximately $2,169,000 and $279,000,
respectively, of outstanding checks in excess of the Company's disbursement
account balance are included in accounts payable in the accompanying balance
sheets.
F-10
<PAGE> 14
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
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 as of October
31, 1996, which were paid after year-end. This amount is reflected as dividends
payable on the accompanying October 31, 1996 balance sheet. For the year ended
October 31, 1997, the Company declared and paid special dividends of $6,064,414.
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, 1997 and 1996, sales to four customers represented 64%
and 45% of total sales, respectively. As of October 31, 1997 and 1996, 53% and
46%, 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.
F-11
<PAGE> 15
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)
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.
STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Cash paid for Interest $ 780,064 $ 652,000
</TABLE>
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. FINANCING ARRANGEMENTS
As of October 31, long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<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 6.9%
to 7.4% as of October 31, 1997), collateralized by all the Company's assets.
[$7,650,000 available as of October 31, 1997]. $ 7,350,000 $ 3,925,000
</TABLE>
F-12
<PAGE> 16
Alchem Aluminum, Inc
Notes to Financial Statements (continued)
3. FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Note payable to bank, due in July 2003, payable in quarterly installments of
$55,357 plus interest at a variable rate (6.88% as of October 31, 1997),
collateralized by all the Company's assets $ 1,273,215 $ 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 (6.88% as of October 31, 1997), collateralized by all the Company's
assets 262,500 300,000
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),
payable in quarterly installments plus interest at a variable rate (6.88% as
of October 31, 1997), collateralized by all the Company's assets 3,875,000 --
Note payable to bank, due in July 2003, maximum amount not to exceed
$2,100,000, payable in quarterly installments plus interest at a variable
rate, (6.88% as of October 31, 1997), collateralized by all the Company's
assets 2,100,000 --
Mortgage note payable under an Economic Development Corporation Bond issuance,
due in September 2005, payable in quarterly installments of $87,500 through
September 1997 and $18,750 from December 1997 to 2005, plus interest at a
variable rate (3.75% as of October 31, 1997) 600,000 950,000
Mortgage note payable under an Economic Development Corporation Bond issuance,
due in June 2007, payable in annual installments of $290,000 from 1994 to
1999, $35,000 from 2000 to 2003, and $30,000 from 2004 to 2007, plus
interest at a variable rate (3.75% as of October 31, 1997) $ 840,000 $ 1,130,000
</TABLE>
F-13
<PAGE> 17
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
3. FINANCING ARRANGEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
-------------------------------
<S> <C> <C>
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% $ 155,742 $ 208,336
Other 13,621 21,630
-------------- --------------
16,470,078 8,084,966
Less current portion (1,181,546) (1,016,000)
-------------- --------------
$15,288,532 $ 7,068,966
============== ==============
</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 certain 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 a note
payable to bank and a mortgage note with bank. No material gain or loss was
recognized on this transaction.
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 interest expense.
F-14
<PAGE> 18
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
3. FINANCING ARRANGEMENTS (CONTINUED)
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ 1,181,546
1999 1,182,810
2000 899,291
2001 861,428
2002 861,428
Thereafter 11,483,575
---------------
$ 16,470,078
===============
</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 term of
these leases is normally 2 years. Total rent expense was $636,412 in 1997 and
$577,000 in 1996.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<S> <C>
1998 $ 484,899
1999 445,463
2000 --
2001 --
2002 --
-----------
$ 930,362
===========
</TABLE>
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 1997 and 1996) 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 1997 and 1996) of up to the first 6% of compensation contributed by
employees. The Company expensed approximately $70,000 and $64,000 for
contributions in 1997 and 1996, respectively.
F-15
<PAGE> 19
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
6. JOINT VENTURE
In October 1995, the Company entered into an agreement with IMCO Recycling Inc.
(IMCO) to form a joint venture to construct a new aluminum recycling plant. The
plant began production in April 1997. Under the agreement, IMCO owns 75% of the
joint venture and the Company owns 25%. The Company's share of the joint
venture's earnings is calculated using a formula as defined in the agreement,
and based on this formula, no equity in earnings was allocated to the Company
in 1997 nor 1996. The Company 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.
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, 1997, the Company had outstanding forward contracts to purchase 650 metric
tons of aluminum at prices per metric ton ranging from $1,387 to $1,599. These
contracts mature at various times throughout 1998, corresponding to deliveries
under fixed price sales commitments. The deferred gain on these contracts was
$41,500 at October 31, 1997. 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 matured at
various times through 1997, corresponding to deliveries under fixed price sales
commitments. The deferred loss on these contracts was $17,000 at October 31,
1996.
8. 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.
F-16
<PAGE> 20
Alchem Aluminum, Inc.
Notes to Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS
An officer was granted by the board a special bonus of 1,961 shares
(representing approximately 20% of the shares outstanding) on October 31, 1997.
The shares, which were subsequently acquired by IMCO, were valued at the IMCO
purchase price. The advance to officer resulted from the applicable withholding
taxes, which was paid to the Company by the officer at the close of the
acquisition by IMCO.
10. CONTINGENCIES
The Company is a party to various claims, legal actions and complaints arising
in the ordinary course of business. In management's opinion, all such matters
are without merit or are of such nature, or involve such amounts, that an
unfavorable disposition would not have a material effect on the financial
position or results of operations of the Company.
11. SUBSEQUENT EVENTS
In November 1997, Alchem sold all of its outstanding capital stock to IMCO in
exchange for cash, IMCO common stock and the assumption of liabilities by
IMCO.
F-17
<PAGE> 21
PRO FORMA FINANCIAL INFORMATION
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 September 30, 1997 has been prepared
as if the November 1997 acquisition of Alchem Aluminum, Inc. (the "Alchem
Acquisition") was consummated on September 30, 1997. The Pro Forma Condensed
Consolidated Statements of Earnings for the year ended December 31, 1996 and
for the nine months ended September 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 Aluminum, Inc.
("Alchem") for its fiscal year ended October 31, 1996.
The Pro Forma Condensed Consolidated Statement of Earnings for the nine months
ended September 30, 1997 and the Pro Forma Condensed Consolidated Balance Sheet
at September 30, 1997 have been derived from (i) the historical unaudited
consolidated financial statements of the Company as of and for the nine-month
period ended September 30, 1997 and (ii) the historical audited financial
statements of Alchem as of and for its fiscal year ended October 31, 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 Consolidated Statements of Earnings due to normal fluctuations
in operating levels, changes in prices, future transactions and other factors.
The acquisitions were 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-18
<PAGE> 22
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 THE IMSAMET AND
ROCK CREEK ACQUISITIONS
------------------------------------------
IMSAMET ROCK CREEK
-------------------------- -----------
COMPANY PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 210,871 $ 37,399 $ 54,072
Cost of sales 185,333 31,116 $(1,272)A1 49,501
200 A2
--------- --------- ------- ---------
Gross profit 25,538 6,283 1,072 4,571
Selling, general and administrative expense 11,774 2,336 (902)A3 2,846
624 A4
Interest expense 3,421 1,533 3,508 A5 606
Interest income (623) -- --
Equity in (earnings) loss of affiliates 114 (150) --
--------- --------- ------- ---------
Earnings before provision for income
taxes and minority interests 10,852 2,564 (2,158) 1,119
Provision for income taxes 4,132 745 (430)A6 26
--------- --------- ------- ---------
Earnings before minority interests 6,720 1,819 (1,728) 1,093
Minority interests, net of provision for
income taxes -- (316) (3)A7 --
--------- --------- ------- ---------
Net earnings $ 6,720 $ 1,503 $(1,731) $ 1,093
========= ========= ======= =========
Net earnings per common share $ 0.55
=========
Weighted average common and common
equivalent shares outstanding 12,309
=========
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
---------------------------------------------
PRO FORMA FOR THE IMSAMET AND
ROCK CREEK ACQUISITIONS
------------------------- HISTORICAL
ROCK CREEK YEAR
------------------------- ENDED
PRO FORMA PRO OCTOBER 31, PRO FORMA PRO
ADJUSTMENTS FORMA 1996 ADJUSTMENTS FORMA
----------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $(3,867)B1 $ 298,475 $111,938 $(1,477)C3 $ 408,936
Cost of sales (3,867)B1 261,011 101,965 (1,477)C3 363,400
150 C4
1,751 C1
------- --------- -------- ------- ---------
Gross profit -- 37,464 9,973 (1,901) 45,536
Selling, general and administrative expense 145 B2 16,823 3,737 399 C5 20,959
Interest expense 9,068 660 1,295 C6 11,023
Interest income (623) (20) (643)
Equity in (earnings) loss of affiliates (36) -- (36)
------- --------- -------- ------- ---------
Earnings before provision for income
taxes and minority interests (145) 12,232 5,596 (3,595) 14,233
Provision for income taxes 359 B3 4,832 -- 790 C7 5,622
------- --------- -------- ------- ---------
Earnings before minority interests (504) 7,400 5,596 (4,385) 8,611
Minority interests, net of provision for
income taxes -- (319) -- (319)
------- --------- -------- ------- ---------
Net earnings $ (504) $ 7,081 $ 5,596 $(4,385) $ 8,292
======= ========= ======== ======= =========
Net earnings per common share $ 0.55 $0.59
========= =========
Weighted average common and common
equivalent shares outstanding 618 B4 12,927 1,208 C10 14,135
======= ========= ======= =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-19
<PAGE> 23
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
--------------------------------------
PRO
HISTORICAL ADJUSTMENT FORMA
YEAR TO CONFORM YEAR
ENDED INVENTORY ENDED
COMPANY OCTOBER 31, ACCOUNTING OCTOBER 31,
HISTORICAL 1997 METHODS (C1) 1997
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 236,588 $ 142,140 $ 142,140
Cost of sales 201,468 133,547 $ (3,666) 129,881
--------- --------- --------- ---------
Gross profit 35,120 8,593 3,666 12,259
Selling, general and administrative expense 13,092 10,635 10,635
Interest expense 5,596 769 769
Interest income (292) (14) (14)
Equity in earnings of affiliates (362) -- --
--------- --------- --------- ---------
Earnings before provision for income
taxes and minority interests 17,086 (2,797) 3,666 869
Provision for income taxes 6,789 -- -- --
--------- --------- --------- ---------
Earnings before minority interests 10,297 (2,797) 3,666 869
Minority interests, net of provision for
income taxes (319) -- -- --
--------- --------- --------- ---------
Net earnings $ 9,978 $ (2,797) $ 3,666 $ 869
========= ========= ========= =========
Net earnings per common share $ 0.78
=========
Weighted average common and common
equivalent shares outstanding 12,814
=========
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
--------------------------------------------
OTHER PRO FORMA ADJUSTMENTS
--------------------------- PRO FORMA
ELIMINATE NINE
THREE MONTHS MONTHS
ENDED ENDED
JANUARY 31, SEPTEMBER 30,
1997 (C2) OTHER 1997
------------ ------------ --------------
<S> <C> <C> <C>
Revenues $ (28,265) $ (3,018)C3 $ 347,445
Cost of sales (25,976) (3,018)C3 302,468
113 C4
--------- --------- ---------
Gross profit (2,289) (113) 44,977
Selling, general and administrative expense (973) 299 C5 18,053
(5,000)C16
Interest expense (138) 915 C6 7,142
Interest income -- (306)
Equity in earnings of affiliates -- (362)
--------- --------- ---------
Earnings before provision for income
taxes and minority interests (1,178) 3,673 20,450
Provision for income taxes 1,346 C7 8,135
--------- --------- ---------
Earnings before minority interests (1,178) 2,327 12,315
Minority interests, net of provision for
income taxes (319)
--------- --------- ---------
Net earnings $ (1,178) $ 2,327 $ 11,996
========= ========= =========
Net earnings per common share $ 0.86
=========
Weighted average common and common
equivalent shares outstanding 1,208 C10 14,022
========= =========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-20
<PAGE> 24
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(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 $ 3,753 $ 363 $ 26,779 C8 $ 4,116
(16,471)C11
(10,308)C10
Accounts receivable 42,991 19,608 (735)C12 61,864
Inventories 14,669 14,391 6,132 C14 35,192
Deferred income taxes 1,430 -- 1,430
Other current assets 1,707 179 1,886
-------- -------- ---------- --------
Total current assets 64,550 34,541 5,397 104,488
Property and equipment, net 124,176 9,401 1,500 C14 135,077
Intangible assets 57,151 210 3,760 C13 73,863
12,742 C14
Investments in affiliates 14,639 4,055 27,558 C10 14,694
(27,558)C14
(4,000)C15
Other assets, net 7,959 1,408 9,367
-------- -------- ---------- --------
$268,475 $ 49,615 $ 19,399 $337,489
======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 18,642 $ 25,088 ($735)C12 $ 42,995
Accrued liabilities 10,048 740 60 C13 10,848
Short-term debt -- -- -- C11 --
Current maturities of long-term debt 8,831 1,182 (1,182)C11 273
(8,558)C9
-------- -------- ---------- --------
Total current liabilities 37,521 27,010 (10,415) 54,116
Long-term debt 110,824 15,289 26,779 C8 146,161
8,558 C9
(15,289)C11
Other long-term liabilities 6,148 132 1,000 C13 7,280
Deferred income taxes 5,508 -- 2,700 C13 8,208
Minority interests 5,951 -- (4,000)C15 1,951
Stockholders' equity 102,523 7,184 17,250 C10 119,773
(7,184)C14
-------- -------- ---------- --------
$268,475 $ 49,615 $ 19,399 $337,489
======== ======== ========== ========
Shares issued and outstanding 12,543 1,208 C10 13,751
======== ========== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-21
<PAGE> 25
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 ($8,161,000). 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-22
<PAGE> 26
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 November 1997, the Company acquired all of the outstanding capital stock
of Alchem for approximately $9,600,000 in cash, not including acquisition
costs, and 1,208,339 shares of common stock. Additionally, the Company
assumed approximately $16,500,000 of Alchem outstanding indebtedness. The
Company funded the cash portion of the Alchem Acquisition and repaid
substantially all of Alchem's outstanding indebtedness through borrowings
under the Company's Amended and Restated Credit Agreement. The acquisition
was accounted for using the purchase method of accounting. The pro forma
adjustments to the historical financial statements for the 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 three months
ended January 31, 1997 to conform to the Company's interim accounting
period.
C3. To eliminate sales and cost of sales for transactions between Alchem
and the Company and Rock Creek.
F-23
<PAGE> 27
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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 borrowings under
the Amended and Restated Credit Agreement 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 $33,000 and $25,000 for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively.
C7. To adjust income tax expense based on the combined effective federal
and state income tax rates.
C8. To record borrowings under the Amended and Restated Credit Agreement 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 Amended and Restated Credit
Agreement.
C10. To record the acquisition of the capital stock of Alchem for 1,208,339
shares of the Company's common stock and cash. The shares of common
stock issued were valued at $19.0344 per share (which was 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.
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.
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.
F-24
<PAGE> 28
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The preliminary allocation of the purchase price included in the pro
forma balance sheet is summarized as follows (in thousands):
<TABLE>
<S> <C>
Working capital $ 13,603
Property and equipment 10,901
Goodwill 16,712
Other noncurrent assets 5,463
Noncurrent liabilities (19,121)
--------
Total $ 27,558
========
</TABLE>
C15. To eliminate Alchem's investment and the Company's minority interest
in the joint venture for the Coldwater, Michigan aluminum recycling
plant.
C16. To eliminate expenses related to executive bonuses, which would not
have been incurred.
F-25
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
** 10.1 Letter of Intent dated September 15, 1997, by and between the Company and
Alchem.
** 10.2 Amendment to Letter of Intent dated September 29, 1997.
** 10.3 Agreement and Plan of Merger by and among the Company, IMCO Recycling of
Coldwater Inc., Alchem and the Shareholders of Alchem dated November 14, 1997.
** 10.4 Registration Rights Agreement by and among the Company and the Shareholders
of Alchem dated November 14, 1997.
*** 10.5 Amended and Restated Credit Agreement by and among the Company, the Subsidiary
Guarantors named therein, the Lenders thereunder, Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as manager and syndication agent,
and Texas Commerce Bank National Association, as administrative agent, dated
November 5, 1997 (filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by
reference).
* 23.1 Consent of Arthur Andersen LLP.
* 23.2 Consent of Ernst & Young LLP.
</TABLE>
- ------------------
* Filed herewith
** Previously Filed in this Current Report on Form 8-K
*** Previously Filed in another Report Filed with the Securities and Exchange
Commission
<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 for the year then ended,
included in IMCO Recycling Inc.'s Current Report on Form 8-K/A-3 dated
January 9, 1998, into IMCO Recycling Inc.'s previously filed Registration
Statements, File Nos. 33-26641, 33-34745, 33-76780, 333-00075, 333-07091 and
333-36833.
ARTHUR ANDERSEN LLP
Toledo, Ohio
January 9, 1998.
<PAGE> 1
EXHIBIT 23.2
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, Form S-8 No. 333-07091, and Form S-3 No. 333-36833) 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, the IMCO Recycling Inc. Annual Incentive Program, and the
registration of shares of common stock, respectively, of our report dated
December 5, 1997, with respect to the financial statements of Alchem Aluminum,
Inc. for the year ended October 31, 1997 included in the Current Report (Form
8-K).
Ernst & Young LLP
Dallas, Texas
January 9, 1998
